Finance

Stocks are about to flash an extremely rare indicator that delivers strong returns 100% of the time in one year


A trader works at the New York Stock Exchange shortly after the New York stock market opened on September 4, 2015.Reuters/Lucas Jackson

  • CFRA Research said the stock market is sending an extremely rare signal that has historically led to strong returns.

  • In January, an election year, stocks rose only 11% of the time, the firm said.

  • Once this milestone is reached, the market rises by 100%, with an average gain of 15.6%.

According to CFRA Research, the stock market is flashing an extremely rare bullish signal with a 100% success rate.

The investment research firm noted that January was a positive month for the stock market, with the S&P 500 up 3.2% since the beginning of the year.

“In an election year, this is actually a very rare, very bullish signal for stocks,” said Sam Stovall, chief investment strategist at CFRA. Only 11% of the time in election years, gains start in the first month. Once the S&P 500 crosses that threshold, Stovall said the stock market would have gained an average of 15.6% for the year, giving it a gain of 100%.

A 15% gain would lift the S&P 500 to around 5,629.This is beyond most people’s expectations What Wall Street strategists expect for this yearGoldman Sachs, Bank of America, Deutsche Bank and Bank of Montreal expect stocks to rise 10% or less in 2024.

Some of the market’s hottest sectors could be poised for bigger returns based on positive indicators for January. Since 1990, the stock market’s positive performance in January has resulted in the top three S&P 500 sectors returning an average of 21% for the year, outperforming the market. Stovall added that 84 percent of the time it was the market as a whole.

That would mean returns of more than 20% for communications services, information technology and financial stocks, which currently make up the market’s three strongest sectors, according to CFRA’s analysis of Dow Jones data.

Stovall warned that these indicators are not “gospel.” Still, the company saw a positive year for the stock market, pointing to strong economic and investment conditions. These include expectations of a soft landing, strong corporate earnings and an easing of interest rates by the Federal Reserve, which will ease financial conditions and boost asset prices.

“For 2024, our positive investment thesis is based on recession avoidance, lower inflation, three interest rate cuts triggered by the Federal Reserve starting in the second quarter of 2024, and double-digit earnings per share growth for the year. Growth sectors are relatively The defensive sector’s leading position also confirms that the market is likely to remain on an upward trend in the coming year, Stovall said.

Stovall warned that despite the recent strong recovery in the stock market, the S&P 500 still faces the risk of a correction of up to 20%. The benchmark index officially recovered all its losses from the 2022 bear market last week, recording a series of losses across the board. With record highs set this month, market experts are increasingly concerned that much of full-year 2024 earnings have been “brought forward” and the rest of the year could be affected as a result.

“The S&P 500 typically gains an additional 5% over the next two months after recovering all of its losses in previous bear markets before falling from 5% to 15%, with gains averaging around 8%. Fully There has never been anything like this in a revived bull market. The market immediately slid into a new bear market.”

Wall Street is growing increasingly optimistic about stocks as traders ambitiously contemplate rate cuts from the Federal Reserve, cooling inflation and a soft landing for the U.S. economy. Investors expect six rate cuts this year, about twice as much as central bank officials formally forecast for 2024, according to CME Group’s FedWatch tool.

at the same time, Expected inflation rate over the next 10 years Economists at the Federal Reserve Bank of Cleveland said the unemployment rate fell to 2.2% in January, close to the Fed’s long-term goal.

Read the original article business insider



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