Bank of America has reported that the S&P 500 is displaying a “rare signal” which indicates that the market rally has significant potential. Technical strategist Stephen Suttmeier stated that the S&P 500 closed at a new 52-week high for the first time in 525 calendar days on Monday. This milestone supports the bull case for equities. Suttmeier also observed that it is only the 25th instance that the broader index has achieved a new 52-week high after a long pause of 300 or more calendar days between highs. Furthermore, it’s the first time that the long-pause indicator has been triggered since the Brexit vote in the UK in 2016.
Potential Returns
Suttmeier believes that the “rare signal” suggests that the S&P 500 will enjoy a stronger-than-average return going forward from 10 days to a year, and even two years later. If the signal bears out as it has in the past, the strategist expects the S&P 500 to rise somewhere between 4,900 and 5,000 by next summer. Of the previous 24 signals, the S&P 500 achieved a double-digit gain 16 times. Suttmeier stated that the long distance between new 52-week highs makes the signal significant.
Bullish Indicators
Suttmeier believes that the latest bullish indicator shows that the market environment is better than the prevailing economic narrative might suggest. He also noted that the rising 40-week and 200-week moving averages support this view. Suttmeier stated that the pattern now resembles what was seen in 2012, 2016, 2019, and 2020. He noted that there is a lot of fear and concerns in the marketplace, but it is similar to those “wall of worry” periods that we have seen in the past.
Other Views
While some experts support Suttmeier’s bullish outlook, some experts have a less positive view of the markets. BTIG’s Jonathan Krinsky noted that troubling signals remain eight months out from the October low, despite the continued resilience in equities. He pointed to the continued weakness in market participation and credit markets. While the S&P 500 has achieved a new 52-week high, only a small percentage of the index has managed the same milestone, which suggests narrow leadership. Krinsky believes that the S&P 500 should move lower and “catch down” to what breadth has been saying for a while.
Bank of America believes that the “rare signal” displayed by the S&P 500 suggests that the market rally has significant potential. While some experts hold a less positive view of the markets, others agree with Bank of America’s bullish outlook. The pattern now resembles what was seen in 2012, 2016, 2019, and 2020.
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