Here are the 6 factors that suggest the stock market bottomed last October and will continue to rally from here

Traders work on the floor of the New York Stock Exchange (NYSE) on October 27, 2022 in New York City.Spencer Platt/Getty Images

Fundstrat’s Tom Lee says it looks increasingly likely that the stock market bottomed in October.

Fundstrat highlighted six reasons why it thinks the bottom is in and a rally in stocks can continue.

“Markets bottom before fundamentals 80% of the time and S&P 500 P/E (2024) is 15x ex-FAANG,” Lee said.

Fundstrat’s Tom Lee has growing confidence that the stock market already bottomed in October and is poised for more gains ahead.

In a Thursday note to clients, Lee made the case that investors remain too pessimistic and should get on board with the idea that a new bull market has started, especially given that equity valuations are not stretched.

“Markets bottom before fundamentals 80% of the time and S&P 500 P/E (2024) is 15x ex-FAANG,” Lee said. “This is hardly expensive. In fact, among the most expensive sectors are defensives like Staples (19.6x), Utilities (17.5x), and Healthcare (16.7x).”

That’s not the only reason why Lee sees more upside for stocks.

These are the six reasons why the stock market already bottomed in this bear market cycle and is poised to continue to rally towards Lee’s 2023 year-end S&P 500 price target of 4,750, according to the note.

1. “Inflation Peaked.”

Date: June 2022
Rationale: During three prior bear markets, equities bottomed when CPI peaked, according to Lee. Inflation hit an annualized peak of 9.1% in June 2022, compared to 5% last month.

2. “High-yield spreads peaked.”

Date: July 6, 2022
Rationale: “High-yield [bond] spread peaks lead equity bottoms. High-yield option adjusted spread has not made a new high, confirming July 6 was the low,” Lee said. An index of high-yield bonds have jumped 7% from their 52-week low and are up just over 2% year-to-date.

3. “Rule of 1st five days.”

Date: January 5, 2023
Rationale: “Since 1950, the 7 precedent instances of a negative prior year and the first five trading days gain[ing] more than 1.4%, seven out of seven times markets [were] higher,” Lee said.

Story continues

When the S&P 500…

..

Read More

Recommended For You

Leave a Reply

Your email address will not be published. Required fields are marked *