Here’s how the S&P 500 returned in the third year of a bull market by Investing.com

Investing.com — According to analysts at Strategas, the third year of a rising market tends to have lower returns than the first two years.

The firm notes that as the current bull market approaches its second anniversary on October 12, 2022, it is still in its early stages in terms of both duration and magnitude.

However, historically, third-year returns have been “below par”, averaging 4.8%, compared with 10.9% in the second year and 46.9% in the first year, it says these.

While the market has been strong recently, Strategas points out that there are potential concerns during the third year of this cycle.

One factor is the interaction between monetary policy, fiscal policy and the value of the currency. Quoting esteemed economist Robert Mundell, Strategas notes that it’s difficult to control all three at once, and eventually “something has to give” — whether it’s inflation, interest rates or the currency.

Strategas also points out that despite strong real GDP growth, lower inflation and tight labor markets, a recession looks unlikely.

However, they caution that market expectations may be overly optimistic, especially with forecasts of 14% growth in S&P 500 operating earnings through 2025, along with assumptions of future interest rate cuts by the Federal Reserve.

“A combination of deficits, deglobalization, decarbonization and massive immigration could make disinflation an unsafe assumption as we enter
next year,” the company said.

As the bull market enters its third year, Strategas believes investors should be mindful of historical trends and current economic challenges.