Home > 3 bullish reasons to buy the S&P 500

3 bullish reasons to buy the S&P 500

The S&P 500 index made a new all-time high yesterday as the stock market rallied on Fed Powell’s reappointment as chair. Here are three bullish reasons to consider that might trigger further upside next year.

The S&P 500 index is back at record-high levels as the equity markets have celebrated the reappointment of Jerome Powell as the Fed’s chairman for a new mandate. Markets liked the idea of continuity and so the index reached new highs.

Before arguing that a top is imminent due to the index rallying all year, here are three bullish arguments in favor of higher levels in the period ahead – gains after big yearly returns, Fed’s policy, and strong earnings from corporate America.

Gains after big yearly returns

The S&P 500 is on track to deliver gains bigger than 20% this year. Statistically speaking, whenever this was the case in the past, in 84.2% of the cases, the next year the stock market went even higher. For example, in 2003, the S&P 500 index gained 26.4% and in the year that followed the return was 9%. Therefore, from a pure statistics point of view, the chances are in favor of more gains in 2022.

Fed’s policy

Yesterday’s announcement of the reappointment of Jerome Powell as the Fed’s chair for a new mandate showed how important the policies undertaken under his first mandate were for the markets. Continuity means “more of the same,” and the idea of a steady hand at the Fed is viewed positively by markets.

While it is easy to focus only on the QE and the easing that followed during the COVID-19 pandemic, we should give credit where credit is due – Powell raised the rates before CCOVID-19 and did a great job during regular attacks from the previous US president, a global trade war, and a deadly pandemic. All this time, the stock market delivered impressive gains – why should it change?

Strong earnings from corporate America

Corporate America delivered much better than expected earnings, and the trend is set to continue. With the monetary and fiscal policy remaining easy and with new spending plans on infrastructure, for example, corporate America’s earnings are poised to rise. If we add to this the fact that American corporations benefit from the global economic recovery, then strong earnings in 2022 are more than likely.

All in all, the S&P 500’s rally might look stretched here, but further gains in 2022 should not be ruled out. Quite the opposite.

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