-
The stock market is poised to hit a new 2023 high by the end of the year, according to Bank of America.
-
The bank said leading indicators in the bond market are showing bullish signals for the stock market.
-
“Constructive conditions in credit markets entering September support a bullish seasonality scenario,” BofA said.
The bond market just sent a signal suggesting the stock market will reach new highs in 2023 by the end of the year, according to a note on Tuesday. American Bank.
The bank noted that adjusted spreads on the Bloomberg U.S. High Yield Average option hit a year-to-date low earlier this month, a sign that bond investors are becoming more comfortable buying riskier bonds. He emphasized that it meant
This is a leading indicator for the stock market. That’s because fixed income investors are usually the first in the market to panic about some macro event that could cause pain for stocks. And when bond investors panic, they demand higher yields on the bonds they buy.
But that hasn’t happened. Instead, the high-yield OAS is around 3.7, near its lowest level since early 2022.
“We view this as a risk-on bullish leading indicator that ultimately supports a new year-to-date high.” S&P500“Constructive credit markets in September continue to support the bullish seasonality scenario we have highlighted,” Suttmayer said.
To surpass the S&P 500 index, which hit a year-to-date high of 4,607 on July 27, would require the stock market to rise at least 3.1% from current levels.
Regarding what drives the market higher, Suttmayer also pointed out: “Mountain of money” A $5.62 trillion money market fund could help fuel year-end stock gains as investors weigh risk-free returns of just 5% against the S&P 500’s nearly 17% year-to-date return. .
“The S&P500 can continue, so [to] grow with a steady profit of [the] “I wouldn’t be surprised if investors pumped cash into the first half of the year and into August, accelerating the rally towards the end of the year,” he said.
Also, the fact that defensive sectors such as utilities and consumer staples have fallen and fallen below support levels bodes well for the stock market, with further upside potential. Suttmayer said this is a bullish risk-on signal because investors often buy these defensive stocks for safety when the broader market is down.
Read original article business insider