Market Decode: Why we believe this bull market still has room to run

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After a robust first quarter, the markets have grown more volatile. In this video, the Chief Investment Office provides convincing reasons to believe in potential future growth.
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Bear Market
Business Cycle
Risks
Bull Market
Fixed Income
Inflation
Equities
Diversification
Interest Rates
Opportunities
Geopolitics
Market Catalysts

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Market Decode
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Please read important information at the end of this program. Recorded on 5/2/2024.
[Kirsten Cabacungan speaking throughout]
After a strong run in early 2024, markets got off to a rocky start in the second quarter. The S&P 500 tumbled off its March highs and ended 4% lower for the month of April, and the Chicago Board Options Exchange Volatility Index, or the VIX, touched its highest levels since last October.
So, what’s behind the volatility and how worried should investors be?
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Kirsten Cabacungan
Investment Strategist, Chief Investment Office
Merrill and Bank of America Private Bank
Hi, I'm Kirsten Cabacungan, with some insights that can help you keep short-term market performance in perspective.
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At the end of April, the S&P 500 was up 5.6% for the year and 40.8% since the October 2022 bear market low.
Source: Bloomberg. Bear market low as of October 12, 2022. Data as of April 30, 2024.
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Past performance is no guarantee of future results. It is not possible to invest in an index.
First, it's worth remembering that the S&P 500 is still up more than 5% for the year and roughly 40% from the start of this bull market in late 2022.
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Driving market volatility
  • Geopolitical disruptions
  • Rising commodity prices
  • Stubborn inflation
True, the likely causes of recent volatility -- from geopolitical disruptions and rising commodity prices to stubborn inflation that remains above the Federal Reserve’s target – represent clear risks.
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The economy grew by a lower-than-expected 1.6% in the first quarter.
Source: Bureau of Economic Analysis, April 25, 2024.
And the Gross Domestic Product, or GDP, figures released in April showed that the economy grew by a lower-than-expected 1.6% annualized pace during the first quarter -- versus 3.4% in the fourth quarter of last year -- raising some concerns over "stagflation" — a time of high prices and slow growth that we haven't seen in decades.
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Are we stuck in a stagflation economy — a time of high prices and slow growth?
Nevertheless, we believe that this bull market still has room to run -- and that it's way too early to raise the specter of stagflation.
Why is this? The more moderate GDP number was driven largely by a drop in company inventory levels and by a rise in imports versus exports. Those factors shouldn’t obscure the underlying economic strengths:
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Underlying strengths
  • Healthy consumer spending
  • Rebound in housing activity
  • Continued business investment
  • Corporate earnings strength
  • Stocks haven't minded a Fed "pause"
Consumer spending, while dipping slightly, remains healthy. Residential investment rebounded and business investment continues to hold up, and first quarter corporate earnings appear on track with the previous quarter. And while stubborn inflation has delayed long-awaited Federal Reserve interest rate cuts, history tells us stocks have historically performed well when the Fed “pauses” for extended periods.
An escalation of geopolitical conflicts or a sharp reacceleration in inflation remain risks to financial markets and could turn companies more cautious on investing and hiring.
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What investors can consider
  • Stay diversified
  • Avoid sudden decisions
  • View volatility as a buying opportunity
But we believe the fundamentals remain positive and suggest that investors stay diversified, avoid sudden decisions based on headlines, and view any period of weakness as an opportunity to strategically add to their portfolios.
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Important Disclosures

The opinions expressed are as of 5/2/2024 and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
Merrill makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. MLPF&S is a registered broker‐dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.
Merrill Private Wealth Management is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Private Wealth Advisors through MLPF&S. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill's obligations will differ among these services. Investments involve risk, including the possible lo ss of principal investment.
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While a number of risks to the markets bear watching, there's cause for long-term optimism, believes Kirsten Cabacungan, Investment Strategist for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank.
Watch the "Market Decode" video above for her informed perspective on the factors — like healthy consumer spending and corporate earnings strength — that bode well for future market performance. “Looking at those kinds of fundamentals is usually a good way to take the pulse on where we are in the market cycle,” Cabacungan says.
For more insights into the markets and economy, read the CIO's weekly Capital Market Outlook (PDF).

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