Stocks to Enter the Second Year of a Bull Market That Could Spell 12% Gains, According to BMO

BMO Capital Markets suggests that it is now opportune to cease resisting the upward trend in the stock market. In June, the S&P 500 index made a noteworthy recovery of over 20% from its bear-market nadir of around 3,577 in October 2022, officially inaugurating a new bull market phase.

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Despite concerns about the potential adverse effects of elevated interest rates and the overall resilience of stocks, the S&P 500 surged past 4,550 in November, marking a 27% ascent from its bear-market low—a promising indication for the initiation of a second consecutive year of a bull market, according to insights from BMO Capital Markets.

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BMO Capital's strategy team notes that historical data spanning approximately six decades reveals that once the stock market climbs more than 20% above a bear-market trough, it has almost consistently been succeeded by gains in the subsequent 18 months.

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The team acknowledges an exception during the early 2000s when the market was grappling with the aftermath of the tech bubble collapse and the 9/11 terrorist attacks—situations considered dissimilar to the prevailing market conditions.

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Leading the team, Brian Belski, Chief Investment Strategist at BMO Capital Markets, expressed the view that the S&P 500 is anticipated to conclude this year around its existing level of 4,550. The team envisions an 11.9% gain by the conclusion of 2024, projecting the index to reach 5,100. Dismissing concerns about diminishing corporate profit margins and the potential impact of the Federal Reserve's policy on higher interest rates and recession fears, the team points to the resilience of the labor market.

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Additionally, the team found that while stocks historically performed better when the 10-year Treasury yield was below its three-year moving average, equities still achieved an average gain of 8.7% over 12 months when yields exceeded the average. On Monday, the 10-year Treasury yield fell to 4.388%, close to its lowest level in two months, following a brief climb in October to approximately 5%, representing a 16-year high.

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The BMO team emphasizes that even if yields, currently above average, start to decline from current levels, their analysis suggests the market can deliver a double-digit gain. Stocks experienced a pause in the robust November rally on Monday.

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Nevertheless, the S&P 500 remains up by 8.5% for the month, the Dow Jones Industrial Average has gained 6.9%, and the Nasdaq Composite Index is poised for an impressive 10.8% monthly gain, according to data.

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