Tom Lee: Stock Market Shows Clear Signal of New Bull Market
The stock market has once again given a clear signal of a new bull market, which is leaving bearish investors trapped, according to Tom Lee, Fundstrat’s strategist. In a bull market, securities such as stocks, bonds, or commodities, are rising in value over a sustained period of time. In a bull market, investors are optimistic about the future of the market and are willing to buy securities, leading to increased demand and rising prices. This trend is often accompanied by positive economic indicators, such as low unemployment rates, high GDP growth, and increased corporate profits. A bull market is generally seen as a sign of a healthy and growing economy, but it can also lead to overvalued markets and excessive risk-taking by investors.
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Recession Already Passed? Tom Lee’s Analysis Indicates Yes
Lee emphasized that numerous warnings of a hard landing and a recession have been falling flat, as inflation has been showing signs of easing, and the job market is resilient. These signals hint at the possibility that an actual recession may have already come and gone.
This most widely anticipated recession ever has led to the question of whether a “rolling recession” has already passed, said Lee in a recent note.
The stock market has experienced more gains since the S&P 500 rallied by nearly 20% from its mid-October low, with yet another bullish technical signal indicating that the year-long bear market has shifted to a brand new bull market.
Bullish Technical Signal: S&P 500 Enters New Bull Market
Lee explained that the S&P 500 has spent more than 25 weeks above its 200-week moving average, and there are zero instances of the S&P 500 making a new low once it has recovered above the 200-week moving average and spent at least 15 weeks there since 1950. According to Lee, the signal has a 100% win ratio, with one-, three-, six-, and 12-month returns being positive every single time the S&P 500 passed the milestone of remaining above its 200-week moving average for 25 consecutive weeks.
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The Significance of 25 Weeks Above the 200-Week Moving Average
Lee added that October 12, 2022, is the low for this cycle, and his views have been strengthened by other bullish signals like the “rule of 1st five trading days” and two consecutive quarters of stock market gains during a bear market. The “Rule of 1st Five Trading Days” is a market indicator that suggests that the performance of the first five trading days of the year can be a predictor of the market’s performance for the rest of the year. The rule states that if the stock market rises during the first five trading days of the year, the market will likely have a positive performance for the entire year, and if it falls, the market will likely have a negative performance. This rule is based on the idea that the first few trading days of the year can set the tone for the rest of the year as investors establish their positions and expectations for the market.
Trapped Bears: Bearish Investors Struggle as Market Remains Bullish
Hedge funds have built the largest short exposure against the S&P 500 since 2011. These bears could be the fuel that drives a sustainable bull market as they slowly capitulate and flip their exposure from bearish to bullish. According to Lee, equities are in a bull market, even if consensus is “trapped bears.” He believes that if inflation falls as quickly as he expects, the Fed will tolerate easing financial conditions. Hence, bears are trapped, in his view.
Stock Market Predictions: Bullish Outlook and Cautious Considerations
Lee reiterated his view that the S&P 500 will surge another 15% from current levels to 4,750 by year-end. Lee’s analysis suggests that the stock market is in a bull market, and bearish investors are trapped. He believes that if inflation falls as quickly as he expects, the Fed will tolerate easing financial conditions, making it easier for the market to remain bullish. Lee’s bullish outlook is reinforced by other bullish signals like the “rule of 1st five trading days” and two consecutive quarters of stock market gains during a bear market. However, it is important to note that predictions and projections in the stock market are subject to change as the market is unpredictable, and unforeseen events can quickly change the trajectory of the market. It is always advisable to consult with a financial advisor before making investment decisions.
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