- A simple indicator makes it feel like the stock market has entered a new bull market, according to Fundstrat's Tom Lee.
- Lee observed that stock market up-days over a rolling 20-day period surged to 65% last week.
- "We believe [the indicator] will soon reach 70%, aided by what we expect to be better than expected [earnings] results," Lee said.
There's a simple indicator that explains why investors might feel like a new bull market in stocks has arrived, according to a Monday note from Fundstrat's Tom Lee.
That indicator is the win ratio of stocks over a rolling 20-day period, which surged last week to its highest level since November 2021.
"The stock market is beginning to 'feel like a bull market' as the percentage of up days (of the past 20) reached 65% last week. For the 15 month period from December 2021 to March 2023, this figure never exceeded 60% and was a crushing mere 20% on October 12, 2022," Lee said.
In other words, stocks are moving higher more often than they're moving lower, and Lee thinks the trend will continue during the seasonally bullish month of April.
"We believe [the indicator] will soon reach 70% in [the] coming weeks, aided by what we expect to be better than expected first quarter [earnings] results," Lee said.
While stocks have caught somewhat of a winning streak over the past month, it hasn't felt like that when looking at the past six months of market action.
During that time, the win ratio between stocks moving higher or lower was just 46%, below the long-term average of 53%.
And that explains why investors remain so bearish based on sentiment and positioning data even as the S&P 500 has rallied about 18% from its mid-October low. "Stocks in the past six months have not risen with sufficient frequency to feel like a bull market," Lee explained.
But with inflation showing signs of cooling down, the potential for better-than-feared earnings results, and a Federal Reserve that is nearing the end of its hiking cycle, Lee believes stocks are poised for more gains in the short-term.
"The S&P 500 has gained 1% for the month and our composite of 'rule of 1st five days' implies gains [of] 4%, or exceeding 4,250 by month end. This remains our view and we believe first quarter earnings season results will be a positive catalyst," Lee said.