3 Reasons Why the Stock Market Is About to Skyrocket
Welcome, folks, to another episode of our Hypergrowth Investing podcast! Last week, we talked a lot about AI, but today, we’re getting right into the macroeconomic weeds to break down our base-case outlook for stocks over the next few mo…
Welcome, folks, to another episode of our Hypergrowth Investing podcast! Last week, we talked a lot about AI, but today, we’re getting right into the macroeconomic weeds to break down our base-case outlook for stocks over the next few months.
Spoiler alert: While the stock market is wavering thanks to a hawkish Fed, we’re still preparing for a massive bull market run… and I’ll tell you why.
Last week, stocks tested and bounced off of some critical technical levels. And we believe that was the start of a big short-term burst higher for stocks in March and April. Plus, we view this bounce as proof that the rally we’ve had off of the October 2022 lows is, in fact, the start of a new bull market.
There are three elements to this bull thesis – fundamentals, technicals, and positioning.
Let’s start with fundamentals.
A lot of people are worried about inflation, rate hikes, a slowing economy, and the 10-year Treasury yield climbing to 4%. But in reality, these trends are shifting course in a favorable direction. Though the decline is a choppy one, inflation is coming down.
Demand and supply are normalizing to pre-pandemic levels. And with a slowing – but not dying – consumer and rate hikes from the Fed, this disinflation will likely continue into 2024 and ‘25.
The Federal Reserve is a bit of a wild card here. However, it’s aware that inflation is falling and is likely to move forward with rate hikes at a slow and steady pace. Plus, the labor market is not weakening in a way that’s indicative of a collapse, so we’re confident that the Fed will be able to pull off a soft landing.
It’s true that the equity risk premium (ERP) – the spread between the S&P 500’s forward earnings yield and the 10-year Treasury yield – is the lowest it’s been in several years. But given the stable string of recent earnings, today’s ERP is historically normal, and we’re confident that stocks are fairly valued. Earnings and P/E multiples suggest that stocks have room to rally over the next nine months.
Now to technicals:
Stocks held the 200-day moving average last week. They held the uptrend line from October 2022’s rally. And they bounced off the resistance line that acted as the ceiling for stocks during the 2022 bear market. Whenever the stock market turns resistance to support, it means a trend reversal is underway. And it just turned a year-long resistance level into support – that is supremely bullish.
Every time stocks were in a bear market, then bounced above and stayed above the 200-day moving average for more than 20 to 30 days, the market went higher. And that’s exactly what we have today.
And we can’t forget about the Triple Barrel buy signal we saw in January, with the Breakaway Momentum, Whaley Breadth Thrust, and the Triple 70 Breadth Thrust indicators. All three are ultra-rare and ultra-bullish – and all three flashed on the same day for the first time ever.
From a positioning perspective, the stock market back to where it was at its October lows. That’s when the 10-year yield popped above 4%, when the futures market began pricing out rate cuts, and when inflation expectations were pretty hot. And that makes us bullish because the positioning of expectations are at levels that leave a lot of room for dovish surprises.
There’s a good chance that the data we receive in March and April surprises to the bullish side. And considering these expectations have swung to peak-bearishness while stocks are holding well-above their October lows, we think it’s yet another sign that we’ve arrived at a new bull market.
Check out the full episode to hear our complete breakdown and analysis!
On the date of publication, Seth Kuczinski did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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