Key Insights
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- The stock market is in a “scenario that promises record highs by the end of 2023,” says Bank of America’s Stephen Suttmeier.
- Although September typically sees weak equity returns, one analysis shows that positive returns are more likely with an already recorded increase of 10 to 20 percent over the year.
- Suttmeier predicts that the S&P 500 could be between 4.85 and 4.875 points by the end of 2023, which would represent a new record.
The US stock market is in a so-called “Goldilocks” scenario that could make record gains possible this year. The S&P 500 enters September in a promising middle ground, according to a note Friday from Bank of America technical analyst Stephen Suttmeier.
Although September is typically the worst month of the year for stock returns, that’s not true when stocks are already up 10 percent to 20 percent, he noted. That’s exactly the case, as the S&P 500 is up nearly 18 percent for the year. “2023 has a bullish bias for September and the rest of the year,” Suttmeier said.
The August stock market selloff should be welcomed by investors
Since 1928, stocks have risen only 44 percent of the time in September, with an average and median return of -1.16 percent and -0.49 percent, respectively. But in years when the stock market gains between 10 percent and 20 percent before September, as is the case now, monthly market returns are positive 65 percent of the time – with an average and median gain of 0.77 percent and 1, respectively .49 percent. This is a big improvement.
Additionally, in the same “Goldilocks” scenario, the stock market returns an average and median gain of 7.57 percent and 8.17 percent, respectively, rising 91 percent of the time from September to December.
“That’s equivalent to an S&P 500 [of] 4850 to 4875 by the end of 2023,” Suttmeier said. And that would be a record high for the index, which was at 4,818 just before entering a painful, year-long bear market in January 2022. The seasonality data also suggests that the stock market’s August selloff was healthy and should be welcomed by investors. Without the sell-off, the S&P 500 would have entered September with an annual gain of more than 20 percent.
According to Suttmeier, year-end returns in the stock market are weaker when stocks have risen so much because “it may be too extreme for the S&P 500 to continue its winning path.” Suttmeier noted that in this scenario, the stock market was only up 45 percent in September increases over time, with an average profit of -0.67 percent. And from September to December, it rises 64 percent of the time, with an average return of -1.40 percent.
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