The S&P 500 (GSPC) posted losses for the third straight session on Wednesday as stocks declined. This highlights the seasonal tendency of market decreases in September.
However, one of the most well-known bulls on Wall Street believes the S&P may rise another 13% this year.
Although there is still a fair amount of uncertainty that needs to be resolved in the upcoming months, which will probably result in shorter bursts of increased volatility, BMO Capital Markets Chief Investment Strategist Brian Belski wrote on Tuesday night that higher US stock prices through year-end represent the path of least resistance and make the bull case scenario (5,050) increasingly likely.
According to Belski, September seasonality may not be at play because historically, equities have gained in 71.4% of cases in the six months following a 20% run-up as the S&P 500 experienced to start 2023.
He is hardly the first person to have expressed this opinion. According to Ryan Detrick, chief market strategist at Carson Group, September seasonality is often not as awful when stocks are up more than 10% year to date. Tom Lee, the director of research at Fundstrat, recently predicted an increase in the benchmark index in September.
We think the general concern around September will turn out to be unfounded,” Lee said in a note on Friday. In reality, according to our assessment of September’s possibilities, a gain of 2% to 3% is likely, helped by a change in the consensus’s perceptions of inflation and inflation threats.
Leaving seasonality aside, Belski and BMO’s forecast is timely because several economists are concerned about the potential for inflation to rise due to the summer’s stronger-than-expected economic indicators. Since the start of the Great Recession, rates based on 10-year Treasury notes have risen to their greatest levels. Rising yields are a sign that market confidence is declining. And regardless of whether the Federal Reserve raises interest rates again, Wall Street bears are still concerned that the lingering effects of monetary policy would stifle economic development.
Marko Kolanovic, chief market strategist at JPMorgan, claims that the chances of an interest rate shock and monetary tightening are “clear,” stating that worries about a consumer credit crunch, global real estate, and company funding might result in a potential slowdown in the labour market.
Belski and other street bulls remind out that the recession that many people expected to occur in 2023 hasn’t yet materialised. After an unusually aggressive rate hike campaign, participation and job opportunities have returned to pre-pandemic levels, which has caused an unexpected slowdown in consumer spending. Even still, a recent spike has economists on guard. In the meanwhile, inflation has declined more quickly than anticipated.
We believe the fabled soft-landing scenario is become more plausible, Belski stated, unless trends in these indicators significantly deteriorate in the upcoming months.
Jerome Powell, the head of the Fed, recently issued a warning, noting that the institution has been keeping an eye on the stronger-than-expected economic data and that it is prepared to maintain high interest rates in order to reduce inflation. Rates don’t always spell the end for stocks, according to an analysis by Belski’s team at BMO.
Since 1979, when the 10-year Treasury Yield was below its three-year moving average, the S&P 500 gained 10.6% the following year, and when yields were above the three-year average, it gained 8.6%.
More importantly, Belski noted, “our analysis suggests that the market can deliver double-digit gain even if yields remain above average should yields begin to decline from current levels.”