The inventory market is poised to hit new 2023 highs by the tip of the yr, based on Financial institution of America.
The financial institution stated a number one bond market indicator simply flashed a bullish sign for the inventory market.
“Constructive credit score markets getting into September help the case for the bullish seasonality eventualities,” BofA stated.
The bond market simply flashed a sign that means the inventory market will hit a brand new 2023 excessive by the tip of the yr, based on a Tuesday word from Bank of America.
The financial institution highlighted that the Bloomberg US Company Excessive Yield Common choice adjusted unfold hit a brand new year-to-date low earlier this month, that means that bond traders are rising extra comfy shopping for dangerous money owed.
That is a number one indicator for the inventory market as a result of bond traders are sometimes the primary available in the market to panic about some kind of macro occasion that would result in ache for equities. And when bond traders panic, they demand greater yields for the money owed that they purchase.
However that is not occurring. As a substitute, the high-yield OAS is at about 3.7, which is close to its lowest stage since early 2022.
“We view this as a risk-on bullish main indicator that favors eventual new year-to-date highs on the S&P 500,” Suttmeier stated. “Constructive credit score markets getting into September help the case for the bullish seasonality eventualities that we now have highlighted.”
The S&P 500 hit a year-to-date excessive of 4,607 on July 27, that means that the inventory market must rise by at the least 3.1% from its present stage to eclipse that.
As to what drives the market greater, Suttmeier additionally identified that a “mountain of money” within the type of $5.62 trillion in cash market funds might assist gas a year-end inventory rally as traders weigh their risk-free return of simply 5% versus the S&P 500’s year-to-date return of practically 17%.
“For the reason that S&P 500 can proceed [to] thrive after strong returns for [the] first half and thru August, it might not shock us to see traders put money to work and gas a rally into year-end,” he stated.
Additionally boding nicely for the inventory market and additional potential upside is the truth that defensive sectors like utilities and client staples are falling and breaking help ranges. Traders typically purchase these defensive shares for security when the broader market is falling, so it is a bullish risk-on sign, based on Suttmeier.
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