- The S&P 500 has defied even the most optimistic estimates so far in 2024.
- A long-time technical strategist now believes the path of least resistance is higher.
US stocks continue to shatter the expectations of skeptics and believers alike.
Wall Street was mostly upbeat about equities heading into 2023, though even the most bullish investment firms thought the S&P 500 would finish this year at 5,100 — a level it has exceeded already. From mid-December to mid-January, three outfits had already lifted their price targets, though they hardly seem bullish now that the index has surged beyond those levels.
Resisting this rally is a fool's errand, according to David Keller, the chief market strategist at StockCharts.com. The long-time chartmaster warned of a near-term pullback as the S&P 500 approached its previous record high but has since abandoned his cautious call.
Barring an unexpected disaster, the technical strategist is now counting on continued strength.
"What you have to be in this environment is a trend-follower," Keller said in an interview with Business Insider. "Respect the trend; follow the trend as long as it goes."
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The market's ability to stack gains while avoiding a meaningful drawdown is rare, Keller said.
"I'm certainly surprised by the consistency of the uptrend," Keller said. "What happens usually — I mean in a plain vanilla market — is you get some meaningful pullbacks along the way. And if you look at the S&P and the Nasdaq 100 — the major averages — they've been just very consistent."
What's perhaps most encouraging about the latest rally is that it's not top-heavy, Keller said. The so-called Magnificent Seven stocks held together last year's market.
Fast-forward to early March, and many of those mega-cap growth names remain hot, especially Nvidia and Meta. But Keller noted that the Magnificent Seven monolith seems to be dissolving since several names have pulled back significantly, specifically Alphabet, Apple, and Tesla.
Although Keller acknowledged that negative momentum for some of the market's biggest stocks is a near-term headwind for the S&P 500, he said a rotation toward less-heralded companies would be a net positive going forward.
The S&P 500 should end the year above today's levels, Keller said, though he doesn't have a specific year-end price target for the index. Key levels to monitor in the near term are 5,050 and 4,910, he said, adding that he'd likely be a buyer if there were a modest pullback to those levels.
"At this point, the long-term trends are still very much pretty healthy here," Keller said. "So I think the market's innocent until proven guilty, and I just haven't seen enough at a high level to say that it's guilty yet."
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Improving market breadth presents exciting opportunities for stock-pickers, Keller said. Broader outperformance means there are more ways for investors looking in the right places to win.
"I like that idea, at this point, of diversifying away from mega-cap growth," Keller said. "I think one thing I'm certainly getting is that green light to not just own Microsoft and Apple anymore."
Keller added: "I think to outperform in this period, you're going to be better off going outside of those mega-cap growth names and into other areas of the market earlier on in their uptrends."
Several sectors and industries are starting to break out, Keller said, adding that a handful are especially attractive. The chartmaster also named some stocks that fit the bill he described.
Companies tied to the travel and tourism industry, including hotels like Hilton (HLT) and Marriott (MAR), and rival short-term rental platform Airbnb (ABNB), are just starting to break out, Keller said. The same is true of several restaurants, including Restaurant Brands International (QSR), which is the parent company of Popeyes and Burger King.
Healthcare stocks have also caught fire lately, specifically those in the biotechnology industry, Keller said. He cited the iShares Biotechnology ETF (IBB) as an enticing way to get exposure to that group, though the fund is only up about 1.5% for the year after a 12.3% surge in December.
Economically sensitive sectors like industrials and materials also appeal to Keller, as both have charged steadily higher in the last month, besting the red-hot S&P 500 in the process.