Are we at the start of a new bull market? Technically, yes and no -- and maybe. A bull market is generally defined as an extended period when the market is up 20% or more from recent lows. The S&P 500 is up about 18% year to date and 19% over the past one-year period. However, it might be considered a bull market as its up 26% from its Oct. 2022 lows.
For technology stocks, though, it's a clear bull market as the tech-heavy Nasdaq Composite is up 31% year to date (YTD) and 21% over the past year as of July 12. Then again, we could be moving toward a broader market bull run, or maybe this will just be a bear market rally. How's that for a waffle?
The thing is, there is no official agency that declares a bull market, and only in retrospect can one truly ascertain if there has been a bull market. But as a long-term investor, I've learned that the more important thing to know is that bull markets, on average, last longer than bear markets, and they generate higher returns than bear markets do losses. So, the odds are in your favor. That said, if this is the start of a new bull market, it is a particularly good time to be in the market because, historically, some of the market's biggest days occur early in bull markets.
As an investor, I think one of the things to look for right now are growth stocks that are market leaders but have been beaten down, with clear catalysts to soar in a bull market. Here are two great options -- BlackRock (BLK +0.00%) and Goldman Sachs (GS 0.67%).
Two market leaders
There are some key attributes that these two financial-services giants share that make them good bull-market buys. Most importantly, they are leaders in their respective markets. BlackRock is the world's largest asset manager with some $9 trillion in assets under management (AUM) and the market leader in exchange-traded funds (ETF).
NYSE: GS
Key Data Points
Goldman Sachs is the leading investment banker in the country. In 2021, the company had record revenue in investment banking and was No. 1 in mergers and acquisitions (M&A), equity and equity-related offerings, common stock offerings, and initial public offerings (IPOs). In 2022, a slower year for investment banking, it was in a virtual tie with JPMorgan Chase for the most investment-banking revenue.
These are two businesses that thrive in bull markets and strong economies. BlackRock generates most of its revenue from fees on its funds and ETFs, and many of those fees are based on asset levels. So, when bulls are running, BlackRock is going to be running with them, as it generates more revenue from a rising stock market.
Let's look at its performance during the bull market, which ran from March 2009 until February 2020. BlackRock went from about $108 per share in March 2009 to roughly $572 per share in February 2020 -- an 18.3% annualized return. Then, after the short pandemic bear market, BlackRock surged to over $900 per share by the end of 2021 with returns of 43% in 2020 and 27% in 2021 before dropping 22% in 2022. It is currently trading at $722 per share, up about 2% in 2023.
It is a similar trajectory for Goldman Sachs. Goldman Sachs has an asset management arm, but its bread and butter is investment banking. This is also a business that thrives when interest rates are low, the economy is strong, and the stock market is surging. These are all conditions that are conducive to M&A, IPOs, underwriting, private equity deals, reorganizations, and other deals.
In 2021, a record year for M&A deals, Goldman Sachs returned 45%. Over the previous 10 years ended Dec. 31, 2021, Goldman Sachs posted an average annual return of 12.6%. Last year, when deals slowed dramatically due to inflation, high interest rates, and other factors, Goldman Sachs was down about 10%.
What's next?
With inflation dropping down to 3% in June, it is likely that interest rates may be near their peaks, given that the Federal Reserve's goal is 2% annual inflation. This is good news for both asset managers and investment bankers, particularly the two largest in those respective fields.
Investment banking should start to rebound in 2024 if these economic trends continue, and the market should follow, as Bank of America analysts predicted the S&P 500 to hit 5,000 in 2024 based on past bull market trends.
Both stocks are pretty fairly valued, given their tremendous earnings power, so both are in a great position to run with the bulls. Both are good investments in almost any market, but this does look like a pretty good time to get in.
