Despite increased fears of a recession, the stock market is generating bullish signal after bullish signal.
Carson Group’s Ryan Detrick highlighted seven signs that indicate an upside surprise.
“We think the odds strongly favor continued strength from stocks in 2023,” Detrick told Insider.
Investors are being pulled in opposite directions this year as recent economic data suggests a recession is imminent while the stock market continues to generate a wave of bullish signals.
“I’ve done this for more than two decades and I’ve never seen a time that nearly everyone agrees a recession is coming and stocks will crash, yet the data isn’t showing this at all,” Carson Group chief market strategist Ryan Detrick told Insider on Thursday.
Investors should focus more on the stock market because it typically leads the economy, according to Detrick.
In other words, the economic weakness that’s being displayed in recent manufacturing data was already telegraphed by the stock market’s 20% sell-off last year. And the impressive recovery since then is signaling the economy will have little trouble staging a rebound over the next few quarters.
“We are in the very small crowd that we can still avoid a recession this year, and some of the wildly bullish stock market signals we’ve seen the past few weeks could indeed be suggesting continued strong stock performance,” Detrick said.
His no-recession call is backed up by the fact that the economy has added nearly six million jobs over the past 15 months.
“You simply don’t have recessions when the employment backdrop is that strong and the consumer remains healthy,” he said.
And a lot of other positive signals have flashed this year, from bullish moving-average crossovers on all three major indexes, to breadth thrusts and seasonality patterns.
“Any one signal by themselves should be taken with a grain of salt, but when you start to stack all the positive signals of market breadth on top of each other, we think the odds strongly favor continued strength from stocks in 2023,” Detrick said.
Combine the bullish technical signals with the solid employment backdrop and consistently bearish investor sentiment, and he believes you have a “bullish cocktail of a massive surprise rally on our hands.”
These are the seven bullish technical signals that suggest to Detrick that the stock market will stay strong for the rest of the year. (All S&P 500 data is since 1950.)
1. Strong January, strong year
When the S&P 500 posts a positive return in January, the rest of the year is higher 86% of the time.
2. A big January after a down year
When the S&P 500 is up more than 5% in January after a negative year, the full year has never been lower, with average gains of about 30%.
3. Staying above December low
When the S&P 500 stays above its December low in the first quarter like it did this year, the rest of the year is higher 92% of the time and up 11% on average.
4. Back-to-back gains
When the S&P 500 posted back-to-back quarterly gains of at least 5%, like it did the last two quarters, the stock market was higher the next year 87% of the time, with an average gain of 13.5%.
5. A strong first five days
When the S&P 500 was up more than 1% in the first five trading days of the year like it was this year, stocks finished the year higher 87% of the time, with an average gain of 15%.
6. Quarterly gains of more than 7%
When the S&P 500 gained more than 7% in the first quarter, like it did this year, the S&P 500 has never generated a negative full-year return, with an average gain of 23%.
7. Rare Zweig Breadth Thrust
A rare breadth indicator that measures stock market participation just flashed for the first time since 2019. Once flashed, the S&P 500 has been higher a year later 14 out of 14 times and up 23% on average.
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