What’s The Next Move For The Stock Market?

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A Reflection On The Stock Market Since 19th of February

What has happened to the stock market since 19th of February?

In the matter of 2 months the S&P500 were at an all time high (3,386), then bottomed at 2,237 (a 34% drop) 23th of March.

As of yesterday the S&P500 is back up at 2,875 (28,5% increase).

So we’ve seen the fastest decline ever followed by the fastest comeback ever in less than 2 months!

The question everybody is asking themselves now is: “What’s the next move for the stock market?”

Because what happened in the stock market in the last 2 months is more than has happened in the last 10 years!

If it’s possible with a 34% decline followed by a 28,5% increase in 40 trading days, everything is possible.

The S&P500 still has a 18% climb to go before we eventually reach new highs, but that’s certainly possible this year.

From what these markets has shown us this may even be possible already next month.

Nothing will surprise me after this.

What’s Next For The Stock Market?

Nick Maggiulli @ofdollarsanddata wrote an interesting article back in january 2020:

“From January 2000 to December 2019, the S&P 500 compounded at a rate of about 6.3% (with dividends reinvested).  Historically, markets compounding in the 6% to 6.5% range over the prior 20 years went on to grow between 4x and 5.5x over the next 10 years:”

The figure shows that historically the S&P500 has grown 4x – 5,5x in the next 10 years if the last 20 years has returend between 6% – 6,5%.

This means that if history will repeat itself the S&P500 would be vauled at 4x to 5,5x it’s value in mid-january (3,280) in year 2030.

A 4x increase of S&P500 would mean 3,280 x 4 = 13,120

A 5x increase of S&P500 would mean 3,280 x 5,5 = 18,040

So we’re looking into a range of 13,120 – 18,040 in year 2030.

For that to happen we need a 14,8% – 18,6% annual growth in the S&P500 between 2020 – 2029.

Right now that sounds highly unlikely, the growth seems just to good to be true.

But let’s look at another figure made by @ofdollarsanddata.

The figure shows the same as the above, but it shows a red star for where S&P500 would be relative to history.

As you can see it’s an enormous outlier. As Nick Maggiulli writes:

“Think about how insane this would be relative to history.  If you are expecting anything less than a doubling of the S&P 500 by 2030, then you are suggesting that the red star above will be even lower on the y-axis than where I already placed it.  If this were to occur, it would be unlike anything we have ever seen before in terms of growth over such a long time period. And the crazy part is that the red star represents “only” a doubling over the next decade.  

If history were to repeat itself in some meaningful way, the S&P 500 would be 4x higher by 2030 than where it is today.”

Would you invest in the S&P500 today if you knew it would be doubled by 2030?

Let’s assume that S&P500 still is at 3,280 (which it was mid-January 2020).

For a doubling to occur you need at least a 7,2% annual interest rate. That seems highly possible.

Most investors are hoping for 10% annually, if that occurs S&P will be at: 3,280 x 1,10^10= 8,507

Right now that number may seem absolutely crazy as we’re in the most volatile market since the 1930’s.

But back to the question; would you invest in the S&P500 if you knew it would double in 10 years?

I know for sure that I would!

The stock market is a wealth creation machine in the long run.

The best thing you could do is to just stay fully invested.

What’s The Next Move For The Stock Market?

The stock market may go up or it may go down.

The only thing we know for sure is that it will be an upwards climb in the long run.

My personal prediction is that S&P500 crosses the 10,000 mark by the summer of 2029.

But don’t take my word for it.


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2 Replies to “What’s The Next Move For The Stock Market?”

  1. Of course its anyone’s guess where the market will head next in the short term, as there are so many conflicting signals between the fundamentals, fed action, and the uncertainty of human behavior once we get through this crisis.

    I really like the way you presented the long term outlook for the market—vey compelling. The graphic tells the story. At first I questioned the horizontal axis placement of the red star (20 year annualized return), seemed low to me, but I calculated the S&P returns and came close, so it makes sense. Regardless, good message, you have to stay invested for the long term!

    1. route2fi says: Reply

      It will be an amazing journey for sure!!!

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