The market recently saw a rebound, and a large number of stocks took part in the rally, a sign of its durability, reports an article in The Wall Street Journal. The S&P 500 climbed up 15% from its June low and many stocks set new yearly highs in August. In another encouraging sign, 93% of S&P 500 stocks closed above their 50-day moving average last month as well.
While the push could be a signal that the rally will last, no one is really willing to call the market’s bottom after such a volatile year. “It’s…a healthier rally…than the ones that preceded this,” Liz Ann Sonders of Charles Schwab told The Journal, adding, “But I don’t think we can say with any confidence that the bottom in June was…the start of a new bull market.” Indeed, investors are still bracing themselves for more interest rates hikes to come and slower corporate earnings in the latter part of this year, as well a possible recession.
Even with the rally, the S&P 500 is still off 11% this year, while Alphabet, Amazon and Tesla have fallen 19%, 17%, and 16% respectively. And while corporate earnings have been more solid than expected, those earnings are only predicted to rise about 8% as opposed to last year’s 47% jump. While some investors are taking the strong corporate earnings as a sign to buy stocks, others are taking a cautious approach with the belief that stocks are being overvalued.
And not all signs point to a sustained rally: companies climbing to their 52-week highs have only reached levels from early 2022, which is still nowhere near where they were in 2021. Many strategists watching the S&P 500 see its 200-day moving average still on a downward trend. “…the market has gotten a little bit ahead of itself in the very short term and needs to digest these gains,” Jeff Buchbinder of LPL Financial told The Journal. Once the S&P 500 cracks through its 200-day moving average, the market will open wider.
———————————————
Validea runs stock and ETF models based on investment strategies with proven long-term track records. If you’re new to Validea, consider taking a look at our product overview or introductory videos.
———————————————