- Stocks just flashed a rare bullish signal that suggests new highs in 2024, Renaissance Macro said.
- Stocks have only risen this fast seven times over the last 44 years, the firm said in a recent note.
- In all instances, that's led to an average gain of at least 20% in the S&P 500 over the next year.
The stock market has flashed a rare bullish signal that suggests the S&P 500 is about to soar another 20% next year, according to Renaissance Macro Research.
The investment research firm pointed out that 71% of firms in the S&P 500 have recently made a new 20-day-high. That kind of velocity in the stock gains has only been seen seven times since 1979, and every one of those instances have been followed by a year of strong returns for the stock market, the firm said.
"In fact, the AVERAGE returns is over 20%, which would imply a 5800 price target for the S&P," strategists said in note on Friday. That outlook represents one of the most bullish views on Wall Street heading into 2024.
"As far-fetched as that may seem, other indicators are suggesting similar moves, and breadth concerns are starting to moderate with the improvement in small and micro-cap names," strategists added.
Some investors have been concerned if the recent rally in stocks can last, given that only a small group of mega-tech stocks have dominating the S&P 500 all year. But small-cap stocks have rallied in recent weeks as investors dial up their expectations for the Fed to slash interest rates next year. That's increased the proportion of winning stocks in the benchmark index, a positive sign for the market.
Lower rate expectations have also fueled a recent decline in the dollar, Renaissance Macro pointed, with the US Dollar Index slipping to 102 on Friday, down from a peak of 107 in early January. A weaker dollar is bullish for multinational firms, as it can make goods more attractive abroad and lift profits.
Markets are warming up to the prospect of a soft landing as interest rates look poised to head lower, inflation cools, and the labor market remains strong.
Stocks rallied this week after central bankers suggested 75 basis-points of rate cuts could be on the table in 2024, vaulting the Dow Jones Industrial Average to a new high on Wednesday and Thursday. The Fed's nod to a coming pivot led to a chorus of bullish stock market forecasts on Wall Street.
Even prior to this week's Fed-fueled rally, Bank of America, Deutsche Bank, and RBC Capital Markets predicted record-highs for the S&P 500 next year.
