As the stock market shows signs of a rally much like that of 2015, should we be optimistic that it will reach new highs or prepare ourselves for another disappointment? In a recent article in Barron’s, James Paulsen of Wells Capital (a unit of Wells Fargo & Co.) thinks it could be different this time, and here’s why:
- This rally is seeing a much broader participation than that of 2015, when it was led by a small number of S&P 500 stocks while most underperformed.
- This year, the stock market isn’t facing any pressure from bonds. Last year, the rally was up against a nearly 50 basis point rise in the 10-year treasury yield (today, that yield is almost where it was when the market bottomed in mid-February).
- Momentum of the U.S. economy is helping to boost the market this year more so than in 2015, when the economy was flat and bond yields were rising.
- In sharp contrast to last year, the current rally is being met with investor pessimism. Despite an even bigger recovery in the market from its February low, most still expect another failed attempt at new highs.
Paulsen’s guess is that the S&P 500 index will soon inch past historical highs and maybe even rise to the 2,200 level.