Three reasons why the stock market may reach record levels by the end of the year
There are three reasons why the stock market could rise to record levels by the end of 2023. One reason is the fact that market breadth has improved in recent weeks, according to Carson Group’s Ryan Detrick. The S&P 500 Advance-Decline line just closed at a new all-time record last week, another bullish signal, he says.
Even after the S&P 500 rose 14% in the first six months of the year, there could be more gains ahead, according to Carson Group’s chief strategist Ryan Detrick. In a market commentary published on Tuesday, he said the stock market could ultimately rise to record highs before the end of the year for three key reasons.
The bullish forecast goes against what many strategists believe. Many analysts and strategists consider the recent rise in stocks nothing more than a bear market rally. Detricks believes that the S&P 500 found its bottom in mid-October.
Below are the three reasons why Detrick believes the stock market could continue to surprise on the upside and reach new record levels by the end of the year.
1. All-time high is not far away
The S&P 500 traded above 4,400 last week, placing the index just a few hundred points from its January 2022 record high of 4,818. At the index’s current price level of 4,373, the S&P 500 would need to climb by around 10% to establish a new record.
“We remain overweight stocks and underweight bonds, with new highs this year not very far away for stocks,” Detrick said. “With some more good news, stocks could absolutely add the 8% needed to get back to new highs.”
And there is precedent for stock market strength to continue into the end of the year after a strong start in the first six months of the year. “A good start to a year usually means a good second half,” Detrick said.
Detrick looked at the 22 times since 1950 that the S&P 500 has risen by at least 10% by the end of June. The last six months of the year produced a median gain of 10% and shares were higher 82% of the time.
2. improving market coverage
While mega-cap tech stocks have driven much of the S&P 500’s gains so far this year, that’s starting to change as more and more individual stocks begin to move higher.
It is a bullish internal sign for the stock market and points to improved sustainability of the ongoing rally. The latest evidence is the fact that the S&P 500’s Advance-Decline line broke out to record highs last week. The Advance-Decline line is a technical indicator that helps measure the number of individual stocks participating in a market trend. The latest outbreak suggests that breadth, or participation among individual stocks, is starting to take off.
“The S&P 500 Advance-Decline line just closed at a new record level last week, another bullish signal that the trend higher is indeed higher,” Detrick said.
Normally during major stock market peaks, stock prices move higher while market breadth moves lower. This time, both stock prices and market breadth are moving higher, giving Detrick confidence that the stock market rally cannot continue.
“We expect the prize will eventually reach new peaks along with breadth, just as it has done many times throughout history, and there is a good chance that will happen this year” said Detrick.
3. Stocks do not go down
Even after a stock market sell-off this year, stocks have more often than not staged a recovery the very next day. “They just don’t want to go down,” Detrick said.
Detrick found that stocks rose an average of 0.27% after a down day, one of the strongest returns for the S&P 500 since 1928.
“I would count this as another reason to stay bullish in 2023” said Detrick.
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