Why Stock Market Gains Are 'Likely To Slow' As Economy Reopens

The SPDR S&P 500 ETF Trust SPY has generated a 90.6% total return since the market bottomed in March 2020.

Economists and analysts are anticipating a major global economic boom in the quarters ahead, yet the S&P 500 has made virtually no progress over the past month.

No More Easy Money: This week, LPL Research analyst Jeff Buchbinder said investors should expect stock market gains to slow significantly in the second half of 2021 as inflationary pressures and rising interest rates weigh on investor sentiment.

Buchbinder said an extended period of market fatigue is common during extended bull markets, and the 1982 and 2009 bull markets both experienced some significant consolidation in their second years.

Since 1950, the average S&P 500 gain in the second year of a bull market has been about 13%. The S&P 500 is already up about 7% since March 23, 2021, suggesting the index could have only about 6% more upside remaining in the next 10 months if the current bull market resembles the bull markets of the past.

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How To Play It: LPL Financial’s year-end target range for the S&P 500 is 4,400 to 4,450, about 5.5% upside from current levels.

For now, Buchbinder said long-term investors should be looking to buy any market dips.

“Amid a backdrop of an improving economy, massive levels of fiscal and monetary stimulus, and rising vaccination rates, we would not expect pullbacks to last very long and any potential corrections are likely to be shallow,” he said.

Benzinga’s Take: Even if the S&P 500 stays flat for the rest of 2021, this year would mark its third consecutive year of double-digit gains. The index has only strung together one such three-year period since the dot-com bubble burst in 2000.