- Investment research firm Fundstrat predicts that we are in the midst of a 20-year secular bull market, with another decade left to run.
- The firm accurately nailed 2019’s equity returns, predicting a 30% annual rise while others screamed ‘recession.’
- In the short-term, Fundstrat sees a peak in Q1 2020 before a mild correction later in the year.
Recession? What recession? Investment research firm Fundstrat issued its latest report with a bold conclusion: we are in the middle of a 20-year bull run. According to the firm, the Dow Jones and S&P 500 will see another decade of gains before any deep or long-term reversal.
The report predicts a number of pullbacks along the way, but the dominant secular trend points to strong US equity returns into the early 2030s.
It’s a bold claim when many analysts are calling for an imminent recession. Even Morgan Stanley predicts gloomy returns over the next decade. So how did Fundstrat come to its bullish conclusion?
Why the Dow Could Run for Another Decade
The report is based on technical analysis which identifies a super-secular bull trend. Founder Tom Lee also said the conclusion is backed by the firm’s fundamental research and demographic trends.
“Long-term technical analysis says we are in a 20-year equity bull market… Consistent with our fundamental and demographic view.”
There are plenty of catalysts to back up the call. Trade war tensions with China are easing going into 2020. The Federal Reserve has lowered rates and began a new course of monetary easing. And flagging corporate earnings are due for a strong rebound in 2020, according to Lee.
I think next year earnings growth will actually be more than double digits.
Fundstrat Perfectly Predicted 2019 Huge Stock Market Gains
It would be easy to laugh off this 10-year hypothesis, but Fundstrat was eerily accurate about 2019’s stock market performance. Founder Tom Lee called for a 30% rise in the S&P 500 at the start of 2019. It finished the year 29% higher.
The firm remained resolutely bullish throughout 2019 despite the chorus of ‘recession’ calls and trade war conflict.
We should point out that Fundstrat doesn’t always get it right. When it comes to bitcoin, Lee predicted a $25,000 peak in 2018. BTC ultimately ended the year in the low $3,000s, having shed 85% from its highs.
JP Morgan Agrees with Bull Market Perspective
Fundstrat isn’t the only firm with wildly bullish expectations. JP Morgan issued a report that predicts “double digit annualized returns” going into the 2030s.
Their analysts believe the current bullish cycle began in February 2016 after a relatively stagnant 16 year period.
The S&P 500 could approach or exceed the 10,000 level by the early to mid-2030s.
What to expect from the Dow in 2020
Alongside the decade-long hypothesis, Fundstrat issued some 2020 guidance. The report predicts a local high in the first quarter of 2020, followed by a healthy pullback going into Q2 and Q3.
Looking further out, Fundstrat sees a “cycle high” in 2021 or 2022. By which point, the firm believes the S&P 500 will reach highs of 3,850 – 4,700. If accurate, it would represent a 18% – 44% upside from here.