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Tag: Ned Davis Research

  • Buy the September dip in stocks as the market heads into the best 3-month stretch of the year, strategist says

    Buy the September dip in stocks as the market heads into the best 3-month stretch of the year, strategist says

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    Malte Mueller/Getty Images

    • Nasdaq 100 and S&P 500 declines in September present a buying opportunity, says Ned Davis Research.

    • Weak seasonality data and excessive pessimism readings suggest a strong 4th quarter rally is ahead, NDR said.

    • NDR sees no signs of a sharp bear market, with positive earnings revisions and economic indicators.

    A 6% decline in the Nasdaq 100 and 4% decline in the S&P 500 since the start of September represents an attractive buying opportunity for investors, according to Ned Davis Research.

    The research firm said in a note on Friday that the weakness in stocks so far this month is more than typical, given weak seasonality data — but it’s also a big opportunity given the market is heading for its best three-month stretch of the year.

    “With the September weakness relieving the optimism and sending sentiment indicators to excessive pessimism readings, equities would be likely to launch a persistent ascent similar to the first quarter advance, supported by fourth quarter seasonal tendencies,” NDR strategist Tim Hayes said.

    He added: “Whereas a comparison of three-month declines shows that August – October has been the weakest, October – December has been the strongest.”

    Hayes finds it encouraging that, based on internal NDR readings, the stock market, economy, and corporate earnings are showing no signs of being vulnerable to a sharp bear market decline akin to what happened in 2022.

    Analyst earnings revisions continue to trend higher, historically a leading indicator for corporate earnings.

    A chart showing rising earnings revisionsA chart showing rising earnings revisions

    Ned Davis Research

    “As with revisions, economic performance is a leading indicator of earnings growth, currently supporting the earnings outlook. While the recession probability has risen from its lows of May and June, it hasn’t risen out of its bullish mode for equities,” Hayes explained.

    Altogether, that means the current stock market decline is more likely to be a garden variety correction that ultimately proves to be healthy for the sustainability of the ongoing bull rally that began in October 2022.

    “The current choppiness will prove to be just that, not the sign of a new bear market. It should lead to a buying opportunity within the continuing bull market, ahead of renewed rallying in the fourth quarter,” Hayes said.

    Read the original article on Business Insider

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  • The stock market is following a rare pattern that could signal double-digit gains next year

    The stock market is following a rare pattern that could signal double-digit gains next year

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    The stock market is following a rare trend only seen four times since 1926, Ned Davis Research said.monsitj/Getty Images

    • The stock market is following a rare pattern that could signal big gains next year, NDR said.

    • The S&P 500 rallied for five months straight this year, followed by three consecutive months of losses.

    • In previous instances when that’s occurred, the index posted double-digit gains a year later.

    A rare pattern of gains and losses in the S&P 500 is flashing a bullish signal that the benchmark index could be in for a double-digit rise in the year ahead, analysts from Ned Davis Research said in a note this week.

    A five-month winning streak earlier this year was immediately followed by a three-month selloff from August through October. That’s an unusual pattern in the history of the market, one that has only been observe four times since 1926. Importantly for investors, it’s typically been followed by a period of strong gains in stocks over the next year, Ned Davis wrote on Wednesday.

    In all instances of the S&P 500 posting at least five straight winning months before a three-month losing streak, the S&P 500 has gained a median 12% over the following six months, according to NDR data. And over the following 12 months, the index gained a median 21%.

    The stock market’s current winning and losing streak most resemble the patterns seen in 1975 and 2016, strategists said. In those instances, stocks gained a respective 22.5% and 12.1% in the following six months.

    “Over the past 50 years, the S&P 500 was up every time from one to 12 months later,” the strategists said. “From a bull/bear cycle standpoint, the early bull stages of 1975 and 2016 are the most akin to 2023, and their double-digit gains six months later are encouraging,” they added.

    The current selloff in stocks, though, is lasting an unusually long time.

    “At 39 market days, it is the longest in the study. The market has work to do to avoid being the first negative case.”

    Stocks are up to start November but have wobbled for the past three months as investors adjust to the outlook for interest rates remaining high for longer. That’s sent bond yields soaring, with the yield on the 10-year US Treasury hitting a 16-year-high in October and helping to push the S&P 500 into correction territory last week.

    Still, market commentators have made a bullish case for equities into 2024, as the economy remains robust and the Fed looks mostly done with its aggressive interest rate hikes to lower inflation. More dovish comments from Fed officials could cause stocks to rally into the end of the year, according to Fundstrat’s Tom Lee, who previously predicted the S&P 500 could retest its all-time-high by the end of 2023.

    Read the original article on Business Insider

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