3 reasons why the stock market could hit a record high by the end of the year
- There are three reasons why the stock market could surge to record highs 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 high last week, another bullish signal," Detrick said.
Even after the S&P 500 surged 14% in the first six months of the year, there could be more gains ahead, according to Carson Group's chief market strategist Ryan Detrick.
Detrick said in a Tuesday note that the stock market could ultimately surge to a record high before the end of the year for three key reasons.
That bullish outlook flies in the face of many strategists who have been calling the recent surge in stocks nothing more than a bear market rally, and it echoes Detrick's consistently bullish commentary on stocks since the S&P 500 found its bottom in mid-October.
Detailed below are the three reasons why Detrick believes the stock market could continue to surprise to the upside and reach new record highs by the end of the year.
1. Record highs aren't far away.
The S&P 500 traded above 4,400 last week, which puts the index just a few hundred points away from its record January 2022 high of 4,818. At the index's current price level of 4,373, the S&P 500 would have to climb about 10% to establish a new record high.
"The bottom line is 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% that is needed to get back to new highs."
And there's 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 was up at least 10% at the end of June. The final six months of the year delivered a median gain of 10% and stocks were higher 82% of the time.
2. Market breadth is improving.
While mega-cap tech stocks have driven much of the S&P 500's gains so far this year, that's beginning to change as more and more individual stocks begin to move higher.
That's a bullish internal sign for the stock market and points to improved sustainability of the ongoing rally. The most recent evidence is the fact that the S&P 500's Advance-Decline line broke out to a record high last week.
The advance-decline line is a technical indicator that helps measure the number of individual stocks that are participating in a market trend. The recent breakout suggests breadth, or participation among individual stocks, is starting to pick up.
"The S&P 500 Advance-Decline line just closed at a new all-time high last week, another bullish signal that the trend higher is indeed higher," Detrick said.
Typically during major stock market peaks, stock prices move higher while market breadth moves lower. This time around, both stock prices and market breadth are moving higher, which gives Detrick confidence that the stock market rally can't continue.
"We expect price to eventually make new highs along with breadth, just as it has done many times throughout history, and there's a good chance it'll happen this year," Detrick said."
3. Stocks won't go down.
Even after a sell-off in the stock market 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 are up an average of 0.27% after a down day, which is one of the strongest returns for the S&P 500 going back to 1928.
"I'd chalk this up as another reason to remain bullish in 2023," Detrick said.
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