To explain the rise, we recently asked some top Wall Street strategists to contribute to the latest edition of the Yahoo Finance Chartbook. These seven graphs, submitted before Jan. 26, show how stocks reached this record level. They also build the case for areas of the market that could be ready to rise.
Since we first published, little has changed in the markets. The small-cap Russell 2000 Index (^RUT) continues to lag the S&P 500 by a significant margin. And many of the gains in the major index are coming from mega-cap tech stocks like Nvidia (NVDA) and Meta (META). Meanwhile, the positive future outlook for earnings has remained intact.
Below, strategists break down the state of stocks with the S&P 500 sitting a record high.
Brian Belski, chief investment strategist, BMO Capital Markets
“The S&P 500 closed more than 20% above its 10/12/22 bear market price low on June 8, a feat commonly accepted to mark the start of a new bull market … The S&P 500 has gained an average of 23% in the 18 months following the 20% threshold, which in the current context would roughly represent 2024 year-end. For reference, the S&P 500 closed at 4,294 on June 8, and applying the average 18-month gain would imply an index level of roughly 5,280. In other words, we believe this is, and continues to be, a bull market now entering its second year.”
Keith Lerner, co-chief investment officer, Truist
“With stocks trading toward the high end of historical valuations, and the consensus forecasting double-digit earnings for the S&P 500 in 2024, a key question for investors is: Will corporate America be able to preserve profit margins, as they have done so well over recent years, in an environment of slowing economic growth and inflation?”
Goldman Sachs Portfolio Strategy Research team led by David Kostin
“Last year, strong earnings growth and AI enthusiasm drove a large increase in valuations for the mega-cap tech companies. At the same time, concerns about the Fed hiking cycle weighed on the prices and valuations of most of the equity market. This created a large gap between the valuation of the market-cap weighted S&P 500 Index and the multiple of the average stock. In recent months, investor expectations for a soft landing have started to broaden the US equity market, but this valuation gap remains unusually wide.”
Callie Cox, US investment analyst, eToro
“This has been a weird bull market, and you can see that in the wide gap between large and small-cap stock performance. The S&P 500 has outperformed the Russell 2000 by 20 percentage points since the low on October 2022. This is highly unusual for the beginning of a bull market, when the mood shifts so dramatically that riskier stocks take the lead … I think this is an encouraging chart, though. If you’re optimistic about the economy and you think the Fed can engineer a soft landing, there could be opportunity in small-cap stocks and other companies that were largely ignored during last year’s recession worries. This is the year of the bull finally feeling like a bull market.”
Tom Lee, head of research, Fundstrat
“I think small caps are a really good opportunity. The bottom chart [dark green line] is the price-to-book ratio of small caps versus large [caps]. You’re back to 1999 levels … The top is the price ratio, and look from that low [in] ’99. Small caps outperformed for 12 years. So, that’s a great launch point.”
Sam Ro, editor, TKer
“S&P 500 earnings have been at record levels, and they’re expected to rise to new records in 2024 and 2025. This is a tailwind for stocks as earnings are the most important driver of prices in the long run.”
Steve Sosnick, chief strategist, Interactive Brokers
“The oversimplified version is that the National Association of Active Investment Managers (NAAIM) surveys their members and asks them for their net exposure … We see that at the end of October, exposures were near a low ebb, with a reading of 24.82. As the market improved, investors’ exposures steadily increased until they peaked at the end of December with a 102.71. Yes, on balance, the survey respondents were net levered long. As the calendar turned, so did the need to play catch up, so they lightened their exposure and the major indices dipped. These fit with other turning points, which seem to occur when exposures either reach low ‘cash is king’ levels or full investment [at or above] 100.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.