3 Upbeat Catalysts Could Keep Rally Alive and Raise Stocks 13% Next Year, Research Firm Says

• The two-year-old stock market may last another year, NDR strategists said.

• That’s assuming three positive catalysts set in, they added.

• Average gains in the third year of a bull market are about 13 percent, the firm said in its analysis.

According to Ned Davis Research, the latest bull market in stocks may still have a long life ahead of it.

Strategists at the research firm said the two-year run could last another 12 months. As long as three positive catalysts continue to boost the market, there’s no reason stocks can’t move higher, NDR said in a note this week.

Of the 13 bull markets that lasted at least two years since 1949, stocks continued to rise for a third year unless the economy went into recession or encountered a Black Swan event such as the Great Depression European or US sovereign debt. loan decline in 2011, the firm said.

In one case, the bull market ended after the Fed reversed its rate cut decision, spooking investors.

“Bull markets don’t die of old age,” strategists wrote. “The chart underscores our view that, absent a Fed policy error, hard landing or external shock, the path of least resistance is a continuation of the bull market.”

Of all bull markets that have lasted at least three years since 1949, stocks have gained an average of 13.1 percent in the third year, Ned Davis Research said.

The S&P 500 has gained 60% since the index entered bull market territory in October 2022. Those gains were largely due to three positive catalysts, the firm said, suggesting stocks could continue to do well as long as the positive factors will remain. in the game.

1. Deflation: Cooling inflation has “defined” the current bull market, the firm wrote. While progress in lowering inflation appeared to stall in the first half of the year, prices continued to move closer to the Fed’s 2% inflation target, reaching 2.5% in August.

2. Avoiding a recession: The US needs a soft landing for stocks to continue to do well. Recession risks, however, appear “low in the near term,” strategists said, with GDP coming in at a robust 3 percent in the last quarter.

3. Strong Earnings: Corporate earnings growth needs to be solid for markets to continue their uptrend. Earnings growth among S&P 500 firms was estimated at about 4.6 percent in the third quarter, according to FactSet. If that turns out to be true, it will mark the fifth straight quarter of earnings growth, the analyst firm said in a note.

“We remain bullish on US equities in absolute terms and relative to bonds and cash,” the strategists added.

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