Stocks took a dip on Wednesday, marking the third consecutive day of losses for the S&P 500, and shedding light on the typical seasonal trend of market declines in September. However, amidst this uncertainty, one of Wall Street’s most bullish voices sees potential for the S&P 500 to climb an additional 13% before the year is out.
Brian Belski, the Chief Investment Strategist at BMO Capital Markets, expressed his optimism in a recent statement. He acknowledged the looming uncertainties and potential for shorter bouts of market turbulence but firmly asserted, “we continue to believe that higher US stock prices through year-end is the path of least resistance with our bull case scenario (5,050) becoming increasingly more likely.”
Looking at historical data, Belski pointed out that when stocks have experienced a 20% surge, like the one the S&P 500 saw at the beginning of 2023, they have historically gone on to produce gains in 71.4% of cases over the following six months. This suggests that September’s typical seasonality might not necessarily be in play this year.
He is not alone in this sentiment. Ryan Detrick, Chief Market Strategist at Carson Group, noted that when stocks have risen more than 10% year-to-date, September seasonality tends to be less troublesome. Tom Lee, the Head of Research at Fundstrat, even predicted a gain in the benchmark average for September, stating, “we believe September probabilities favor a gain of 2% to 3%.”
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Belski also addressed concerns about rising yields in the bond market, which can sometimes indicate shrinking investor confidence. Despite these concerns, he highlighted that the predicted recession for 2023 has not yet materialized. Consumer spending has remained resilient, with job openings and participation levels returning to pre-pandemic norms. Additionally, inflation has decreased more rapidly than anticipated, albeit with a recent uptick that has economists on alert. Belski asserted that unless these indicators take a significant downturn, the idea of a soft economic landing becomes increasingly plausible.
Federal Reserve Chair Jerome Powell has issued warnings about the stronger-than-expected economic data and the potential need for higher interest rates to curb inflation. However, Belski’s analysis counters the notion that rising rates spell doom for stocks. He pointed out that since 1979, when the 10-year Treasury Yield remained below its three-year moving average, the S&P 500 saw gains of 10.6% in the following year. Even when yields were above average but started declining, the market showed potential for double-digit gains.
Furthermore, Belski highlighted a positive trend in earnings projections, a significant driver of stock prices. Recent data from Factset reveals that earnings estimates for the rest of 2023 and full-year 2024 have been revised upward during July and August. Such revisions, Belski argued, historically correlate with improved earnings growth in the coming months.
In summary, despite the recent stock market dips and concerns about rising yields, some of Wall Street’s prominent voices remain optimistic about the market’s trajectory. They emphasize historical patterns, resilient economic indicators, and promising earnings projections as reasons to believe in the potential for further gains in the S&P 500 by year-end.
