This week the podcast is a little different. With the mid point of the year coming up, we’re revisiting the charts we discussed the most, and that resonated the most, in our meetings with investors in the first half of 2023. Although the S&P 500 has now pulled ahead of our recently revised year-end 2023 S&P 500 price target of 4,250, we’ve been north of the consensus tracked by Bloomberg on a median basis even before we raised it from 4,100 several weeks ago. For several months, the investors we’ve met with have generally assigned us to the bullish camp given what they’ve described as a more constructive view of the stock market on our part relative to other voices. We’ve joked that we’ve felt more neutral than bullish, but agree that we aren’t part of the bearish camp. Our top charts, which we discuss in today’s podcast, help illustrate why we’ve had this mindset. As for our market call today, most of our top charts are telling us the rally still has more room left in it, though one (which is sentiment based) requires close monitoring as it may soon signal that the rally has gone too far.
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Now, the details.
Top Chart #1 – The chart that caused many equity investors to get more open minded about the rally in our 2Q23 meetings
op chart in the first half of:
Next up, Top Chart #2 – The chart that has framed our view of what kind of stock market environment we are in today
One of the reasons the:
Moving on to Top Chart #3 – The chart that debunked the myth that the October lows needed a retest b/c sell-side EPS forecasts were too high
timeline was a little off in:
Moving on to Top Chart #4 – The chart that has argued against the idea that the S&P 500 deserves to trade at a 15-16x P/E
E model, which forecasts a YE:
Wrapping up with Top Chart #5 – The chart that has provided a gut check on deeply entrenched bearish views
Our last top chart is an old favorite used by many on the Street, and it’s one that we always return to because it helps us understand when sentiment has gotten too extreme in either direction. It’s our chart highlighting how deeply bearish individual investors were to start the year, with AAII net bullishness sitting near Financial Crisis lows. Typically, from those kinds of levels the S&P 500 posts mid teens gains over the next 12 months, something that suggests the S&P 500’s move to slightly above 4,400 has been rationale. Sentiment on this indicator had started to recover before the banking crisis, then quickly fell again. In recent weeks, another recovery appears to be taking hold and the bias is back in favor of the bulls. For now, the chart helps to explain how the move in the S&P 500 has been justified. Admittedly, we are now watching it closely as we expect it to help signal when the rally has gone too far. We’re getting closer to that point, but don’t think we’re there yet. On a 4-week average, +30% in favor of the bulls typically spells trouble for the stock market. The latest unadjusted weekly data point has bulls at +22% with the four-week average still at +5%. For now, this chart helps to keep us in the constructive camp. Admittedly, we’re not sure how long that will last.
That’s all for now. Thanks for listening, and be sure to reach out to your RBC representative with any questions.
