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The Stock Market May Be Entering a New Phase

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Picture a bull. Do the words “hope” or “optimism” come to mind? Probably not. (If you’re anything like us, “charge” or “horns” or even “run” might be more applicable.) But hope and optimism are actually related to bulls – when it comes to investing. These words describe two different phases of a bull market in stocks, according to Goldman Sachs analysts.

In an episode of the Exchanges at Goldman Sachs podcast, Peter Oppenheimer, chief global equity strategist at Goldman Sachs, describes different factors that move stock prices. Instead of looking at market cycles as simply bull (when prices are rising) or bear (when prices are falling), Oppenheimer discusses the market’s four phases: despair, hope, growth and optimism. 

While the despair phase is just another name for a bear market, hope, growth and optimism describe distinct periods within a bull market. And, as Oppenheimer describes, the U.S. stock market may be transitioning from one of these bull market phases to another.


The market moved from the “despair” to “hope” phase in late March and now appears to be transitioning to “growth.”


Finding hope after despair. During the early days of the Covid-19 pandemic, the U.S. stock market was in a “despair” phase that lasted from February 19, 2020 to March 23, 2020. During that short time, the S&P 500 fell about 34%. 

Thankfully, that phase ended in March – and that’s also when the stock market moved into a more hopeful period. “The hope phase is what we describe as the initial phase of a new bull market,” Oppenheimer says, adding that it “nearly always” begins during a recession. “For some reason, investors start to get optimistic about a future recovery. And that phase, that hope phase, tends to be very strong,” he says.

Just how strong? Since 1973, past hope phases have seen average gains of 44% for the S&P 500, Goldman Sachs Research analysts note in a recent report. And from late March through early September, this index rose 59%.


Historically, the “growth” phase is the longest, but the shift is often associated with volatility and may be accompanied by a small market setback.


Moving into growth. With gains like that, it might be nice to stick around in the hope phase a bit longer – but change isn’t a bad thing. “We’re moving into what we call the growth phase, which is the longest part of a bull market,” Oppenheimer said in late November on the podcast. During the growth phase, profits and dividend growth should take over as the main drivers of stock market gains, according to Goldman Sachs Research. 

Buckle up, then settle in for a long ride. The growth phase is the longest of the four – typically lasting around 49 months – but getting there may be a little bumpy. As Oppenheimer points out, that’s because the move from hope to growth is often associated with high volatility. What’s more, this transition may be accompanied by a small market setback, as investors “wait for, or begin to doubt, the recovery,” according to Goldman Sachs Research.

Even so, Goldman Sachs Research strategists remain optimistic about the outlook for the stock market in the year ahead. As of January, they have forecasted the S&P 500 will rise to a level of 4,300 by the end of 2021 – a gain of 14% from where this index was trading at the start of the year. 

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.