- According to Bank of America, the stock market may reach a record high before the end of the year.
- BofA said that when the stock is up 10%-20% in September, the month’s returns are positive 65% of the time.
- “2023 has a bullish setup for September and the rest of the year.”
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The stock market is in a Goldilocks scenario which could create conditions for record highs before the end of 2023.
The S&P 500 is entering September in a promising midway point, according to a Friday note from Bank of America technical analyst Stephen Sutmeyer.
He noted that September is generally the worst month of the year for stock market returns, but not so when stocks are already up 10% to 20% in the month. And we’re right here, with the S&P 500 up almost 18% year to date.
“The outlook is bullish for September in 2023 and for the rest of the year,” Sutmeyer said.
Since 1928, stocks have gained only 44% in September, with mean and median returns of -1.16% and -0.49%, respectively.
But in years when the stock market rises between 10% and 20% in September, as it is now, market returns are positive 65% of the time during the month, with mean and median gains of 0.77% and 1.49%. respectively. This is a huge improvement.
Additionally, in the same Goldilocks scenario as mentioned above, the stock market returns average and median returns of 7.57% and 8.17%, respectively, and is up 91% from September to December.
“It’s on par with the S&P 500 [at] 4,850 to 4,875 by year-end 2023,” Suttermeier said. And that would be a record high for the index, which peaked at 4,818 in January 2022 just before the market entered a painful year-long recession.
The seasonal data also suggests that the August sell-off in the stock market was healthy and should have been welcomed by investors. That’s because without the selloff, the S&P 500 would have advanced into September with gains of more than 20% year-to-date.
According to Sutmeyer, year-end returns in the stock market are weak when stocks are that high, because it “could be too extreme for the S&P 500 to continue its winning ways.”
Suttermayer found that the stock market was up only 45% in September during this scenario, with an average gain of -0.67%. And from September to December, it is up 64% with an average return of -1.40%.