According to Bank of America, there is more upside in stocks after a new bull market started on Thursday.
“After the S&P 500 broke the +20% mark from the bottom, the S&P 500 continued to rise 92% of the time over the next 12 months,” said BofA.
Here are five questions investors should ask themselves now that the bear market is officially over, according to BofA.
The bear market in stocks is officially over and a new bull regime has begun after the S&P 500 closed 20% above its Oct. 12 low on Thursday.
And according to a Friday note from Bank of America equity strategist Savita Subramanian, gains in the stock market could continue as investors slowly buy into the bullish environment and macroeconomic headwinds such as rising interest rates near their end.
In addition, stocks are doing well after hitting the 20% bull market threshold, based on historical data.
We don’t put a lot of stock (pun intended) in arbitrary definitions, but note that after crossing the +20% mark from the bottom, the S&P 500 continued to rise 92% of the time over the next 12 months, returning 19% average,” Subramanian said.
That’s based on data since the 1950s and compares to a 12-month earnings ratio of just 75% and a 12-month average total return of 9%.
While there are still risks to the rally, the stock market has a way of continuing to climb a wall of worry while investors remain on the sidelines due to negative sentiment and lingering concerns. But now it’s time for investors to prepare for another bull run and start asking questions to prepare.
These are the five things investors should be asking themselves now that the bear market is officially over and a new bull regime has begun, according to BofA.
1. “What will it take to get investors bullish again?”
“The wall of worry could continue until investors feel pain in long bonds or FOMO in stocks. Investors have bought into a singular stock theme (AI, more on that below), but a broader bull case can be made for stocks: We are off ZIRP and real returns are positive again, volatility around interest rates and inflation has eased, earnings uncertainty has decreased, and companies have maintained margins by cutting costs and focusing on efficiency. fall from here,” Subramanian said.
2. “Should I invest in actively managed funds?”
“After decades of passive equity funds taking shares from active stocks, the active approach in public stocks now makes sense. Fewer eyeballs mean inefficient markets (more alpha), greater diversification and a reversal in passive inflows argue for stock selection over indexation. the index this year, a record cut is unsustainable,” Subramanian said.
3. “Which stock index, equal-weighted or cap-weighted?”
The equal-weighted S&P 500 could deliver double the returns of the S&P 500 index based on several signals. These include width reversal, relative value (the equal-weighted index trades at 15x), lower duration risk versus the cap-weighted index, and more upside versus the cap-weighted index based on our analysts’ price targets,” Subramanian said.
4. “If stocks are taunted, why is the S&P 500 trading at 20x?”
“Wall Street is full of unconvincing bears, and individual investor outflows are at capitulation levels somewhat at odds with high snapshot multiples. 20x is not the reason to be bearish – when earnings fall as they are now, earnings rise P/E ratios. It’s just math,” Subramanian said.
5. “How can I make money with AI?”
“The obvious beneficiaries, capex takers, are quasi-enterprises and select software companies that can provide AI services. But not all tech gains, many have to spend money to stay competitive. The greater benefit can be achieved by old economy, inefficient firms that can grow profits are more permanently driven by efficiency and productivity gains,” Subramanian said.
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