+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

4 bullish signals are pointing to more stock gains ahead, according to Bank of America

Jul 25, 2024, 00:28 IST
Business Insider
Spencer Platt/Getty Images
  • The stock market rally is likely to continue, says BofA technical analyst Stephen Suttmeier.
  • Suttmeier highlighted four positive signals that suggest a healthy bull market in a note on Tuesday.
Advertisement

As the stock market hits a series of record highs in 2024, there are positive signals suggesting the rally can keep going.

In a Tuesday note, Bank of America technical analyst Stephen Suttmeier said the ongoing bull market is in good health amid a broad rotation into shares of smaller companies.

"A broadening of the rally as well as rotation, which is the lifeblood of a bull market, suggest that the SPX hit last week's highs from a position of strength, not weakness," Suttmeier said of the S&P 500.

Suttmeier said solid seasonals toward the end of an election year, combined with strong technical factors, could help fuel the stock market to record highs later this year.

These are the four bullish indicators that give Suttmeier confidence in a continued market rally.

Advertisement

  1. Junk bond spreads are narrow

The difference in yields on risky corporate debt and ultra-safe Treasury debt is showing no sign of concern for the broader stock market.

When investors get worried about the economy and the broader market, they usually demand a higher yield for risky junk bonds relative to risk-free Treasurys, sending credit spreads soaring.

"This credit spread remains narrow, which is a positive sign," Suttmeier said.

Bank of America
  1. Corporate bond spreads are tight

Similar to the signal coming from junk bonds, the chart below measures the difference in yields between higher-quality corporate debt and the 10-year US Treasury note.

"The BAA spread remains benign (aka risk-on) below 2.0," Suttmeier said.

Advertisement

The spread hit 1.38 in April, representing its lowest level since 1995. It currently stands at about 1.58, well below the 2.0 level that Suttmeier says represents a "risk-on" environment for stocks.

Bank of America
  1. $6 trillion in cash is a bullish signal

Investors holding a record $6 trillion into money market funds is a contrarian bullish signal, according to BofA.

That money could serve as fuel for a continued stock market rally, especially if the Federal Reserve cuts interest rates, making the current 5% cash yield less attractive.

Such a scenario would likely lead investors to evaluate their cash position, and ultimately consider buying stocks.

Bank of America
  1. Fed financial conditions confirm the rally

New highs in the stock market over the past few weeks have been confirmed by new cyclical bull market highs for the Chicago Fed National Financial Conditions Index, according to Suttmeier.

Advertisement

That's a healthy signal that should support sustainable gains in the market.

The financial conditions index last sparked a major negative divergence towards the end of 2021, when the S&P 500 was rising even as the financial conditions index was declining.

With the financial conditions index recently hitting its highest level since early 2022, it still has room to run to eclipse its 2021 peak, suggesting there's more room for upside for the stock market.

Bank of America
You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article