THE DOW JUST HAD ITS BEST QUARTER SINCE 1987. WE MIGHT BE WITHNESSING THE START OF A NEW BULL MARKET / BARRON´S MAGAZINE

The Dow Just Had Its Best Quarter Since 1987. We Might Be Witnessing the Start of a New Bull Market.

By Ben Levisohn


Everything is going up! Or at least it feels that way.

The Dow Jones Industrial Average,for instance, finished up “just” 217.08 points, or 0.9%, at 25,812.88, still a long way away from an all-time high. But the S&P 500is close after rising 1.5% to 3,100.29, and the Nasdaq Compositeis even closer after climbing 1.9% to 10,058.77. Just 82 of the stocks in the S&P 500 finished lower today.

Stocks hitting new all-time highs were prevalent. Tesla(TSLA) rose 6.9% to close at a record $1,079.81; Microsoft(MSFT) advanced 2.5% to $203.48 to finish that day at a record $203.61; Shopify(SHOP) closed up 2.9% at $949.20. You’ll notice something about those names--they all trade on the Nasdaq, which helps to explain why tech-heavy index outperformed again.

And it wasn’t just today. The Nasdaq finished the quarter up 30.6%, trouncing the S&P 500’s 20% rise, and the Dow’s 17.8% rise.

The Dow’s gain was the best since the first quarter of 1987, but if you really wanted to enjoy the rally, you have to own tech, even if it’s tech that is no longer in tech (Here’s looking at you Amazon.com(AMZN), Facebook(FB), Netflix(NFLX) and Alphabet(GOOGL)).

You would think that the amazing market comeback would have strategists feeling good about what’s to come. They’re not.

They’re not even sure what is to come: The difference between strategist targets is now the largest since 2009, according to Sundial Capital Research. But as a group, they don’t see the market heading much higher. The average strategist target for the S&P 500 is 2998, 3.3% below Tuesday’s close.

That’s good news for investors, notes Sundial’s Jason Goepfert, because strategist-sentiment makes a solid contrarian indicator. When strategists had pessimistic targets at midyear, the S&P 500 usually went up over the next six months.

“ “Wall Street has never been more confused, or apprehensive,” Goepfert writes.

“And when strategists gave the S&P 500 the least credit this far into the year, it had a strong and consistent tendency to defy those expectations by rallying into year-end.”

And that fits with history.

Keith Lerner, chief market strategist at SunTrust Advisory Services, notes that the market has followed each of the 10 previous best quarters going back to 1950 with a positive quarter. Gains have been small--as little as 2% during the second quarter of 2003--and large--as much as 14% during the first quarter of 1975—but the S&P 500 has always gone up.

“[The] weight of the evidence in our work still suggests that we are in a bull market—a bull market that has further to go but became stretched to the upside on a short-term basis in early June,” Lerner writes.

“While the fits and starts in the economy and other factors will likely lead to periodic market setbacks, our work suggests this bull market continues to earn the benefit of the doubt.”

Of course, Wall Street never had to deal with a novel coronavirus before, and that has the potential to make history irrelevant.