While many investors are still harboring bearish sentiments, with Morgan Stanley positing that stocks could drop another 20% and Bank of America and Goldman Sachs forecasting new market lows in the next few months, there are signs that investors should consider diving back into the market, contends an article in Barron’s. Those signs include:
- French and German stock markets are posting close to record highs. While the war in Ukraine has definitely roiled European economies, Europe has managed to transition off their reliance on Russian energy quickly. And in spite of persistent inflation, stock prices in the UK have risen, while the German DAX Index has soared 29% from its low and the French CAC 40 Index has gained 23%.
- Research shows there’s a correlation between a decline in profits and index decline during bear markets. The 23% decline in the S&P 500, from its highest to its lowest, would indicate an already-discounted profits shortfall so far this year, Barron’s believes.
- The Fed could still raise interest rates before they hit a point where the economy starts to reverse. And the CPI has dropped from its 9.1% peak last June to 6.4% in January. In the past, the economy has continued to grow even with interest rates at the level they’re currently at.
- The January rally took many investors by surprise, with the Dow index even dipping briefly into bull market territory on January 13th. The NASDAQ Composite and the S&P 500 have both gained 11% and 6%, respectively. As the S&P 500 is one of the top 10 indicators of the economy, and historically heralds a reversal in the economy 3 to 11 months in advance, that would suggest that a bull market has already started, Barron’s contends.
- Last January, the daily data collected by Golden Eagle began to show new lows significantly outweighing new highs—a trend that continued throughout the year. So far in 2023, there are more 52-week new highs than new lows reported every day, and the market generally does not decline in that case.
- When the S&P 500 50-day moving average crosses over then 200-day moving average, that sets off a bullish signal, the “golden cross.” The reverse movement indicates a bearish signal; known as the “death cross”, this occurred in December 2021. The golden cross happened earlier in February, signaling a higher stock market is on the near horizon.
- Stock market movements in January tend to predict how the market will do for the rest of the year, with that correlation correct 70% of the time since 1960. As the S&P 500 gained 6% in January 2023, that suggests the rest of the year will be a positive one.