Stocks have risen more than threefold since hitting a bottom in March 2009 and they have more room to climb higher, said David Rosenberg, head strategist at Gluskin Sheff & Associates Inc.
The S&P 500 index of the biggest U.S. companies has risen 3 percent this year through June 22 after reaching a record intraday high of 2,134.72 in May. Stocks are most likely to hit their yearly highs in December, according to data going back to 1928.
“The stock market is turning in a stellar performance as it continues to climb the proverbial ‘wall of worry,’” Rosenberg said in a June 22 report
obtained by Newsmax Finance. He joined Toronto-based Gluskin Sheff in 2009 after working as chief North American economist at Merrill Lynch.
The S&P 500 hit a closing low of 676.53 on March 9, 2009, as the U.S. suffered its worst recession since the Great Depression. Since then, the index has risen about 215 percent as the U.S. economy recovered and the Federal Reserve undertook a record-setting stimulus program.
Rosenberg cited six reasons for ongoing optimism about the stock market:
- Resilience: “It bends but refuses to break. It has now been 1,350 days since the last major correction in the S&P 500. There is still plenty of room to run considering we had stretches of 2,500 days between 1990 and 1197 and 1,600 days from 2003 to 2007.” A correction is a decline of 10 percent from a market peak.
- Monetary Policy: “By the time the Fed starts to tighten, we are typically only one-third of the way through the market cycle. And the markets don’t even believe we are that close to the first rate hike anymore.” Fed Funds futures show that investors place a 17 percent chance of a rate hike by the Federal Reserve in September, and 52 percent likelihood in December.
- Cyclical Gainers: “Market leadership is in the sectors that are very much pro-cyclical – consumer discretionary, banks, technology, more recently the homebuilders and the small-cap stocks.” The Russell 2000 index of small-cap stocks has gained 6.6 percent this year, outpacing bigger companies.
- Investor Sentiment: “Sentiment remains very poor which is a contrary positive.” Rosenberg cited several indicators of investor bearishness which could set up the market for a massive short squeeze.
- Economy: “There has never been a bear market without there being a recession. The leading indicators are behaving in a very early-cycle manner, even with this expansion celebrating its sixth anniversary.” He said the current industries with the most momentum, housing and autos, usually do well 40 percent of the way through a typical business cycle.
- Relative Value: “Valuation support is also coming from the bond market as yields have retreated from the recent highs of 2.5 percent to 2.27 percent.”
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