There are three reasons the stock market could hit record highs by the end of 2023.
One reason for this, according to Carson Group's Ryan Detrick, is the fact that market breadth has improved in recent weeks.
“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 is up 14% for the first six months of the year, there could be more gains to come, according to Ryan Detrick, chief market strategist at Carson Group.
Detrick said in a note on Tuesday that the stock market could eventually hit a record high before the end of the year for three main reasons.
This optimistic outlook is at odds with many strategists, who have described the recent surge in stock prices as nothing more than a bear market rally, and reflects Detrick's consistently bullish comments on stocks since the S&P 500 bottomed in mid-October.
Below are the three reasons why Detrick believes the stock market could continue to surprise on the upside and could set new record highs by the end of the year.
1. Record heights are not far off.
The S&P 500 traded above 4,400 last week, taking the index just a few hundred points away 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 rise about 10% to set a new record high.
“Bottom line, we remain overweight equities and underweight bonds, with new highs for equities not far off this year,” Detrick said. “With more good news, stocks could well gain the 8% needed to revisit new highs.”
And there is precedent for the stock market holding up through year-end after a strong start in the first six months of the year.
“A good start to a year usually means a good second half,” said Detrick.
Detrick looked at the 22 times since 1950 that the S&P 500 had risen at least 10% at the end of June. The last six months of the year delivered an average gain of 10%, and shares were higher 82% of the time.
2. The market breadth improves.
While mega-cap tech stocks have accounted for a majority of the S&P 500's gains so far this year, that's starting to change as more and more individual stocks begin to rise.
This is a bullish internal signal for the stock market and suggests improved sustainability of the ongoing rally. The latest evidence is the fact that the S&P 500's advance-decline line hit a record high last week.
The Advance Decline Line is a technical indicator that helps measure the number of individual stocks participating in a market trend. The recent breakout suggests that the breadth, or participation, of individual stocks is increasing.
“The S&P 500's advance-decline line just closed at a new all-time high last week, another bullish signal that the trend to the upside is actually higher,” Detrick said.
Typically, stock prices rise during major stock market highs while market breadth decreases. This time, both stock prices and market breadth are rising, making Detrick confident that the stock market rally cannot continue.
“We expect the price along with the width to make new highs at some point, as has happened many times in history, and there's a good chance that will happen this year,” Detrick said.
3. Stocks will not fall.
Even after a stock market sell-off that year, stocks often rebounded the next day.
“They just don't want to go under,” Detrick said.
Detrick found that stocks are up an average of 0.27% after a down day, marking one of the strongest returns for the S&P 500 since 1928.
“I would take this as another reason to remain bullish on 2023,” Detrick said.
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