Although the performance of the U.S. stock market was not satisfactory in early September this year, the bulls on Wall Street remain optimistic about the future of the U.S. stock market. The strategy team of BMO Capital Markets believes that three major factors will continue to support the U.S. stock market and make it possible for the S&P 500 index to rise by double digits in the remaining time.
First, Wall Street bulls point out that according to historical data, when U.S. stocks rise 20% within six months, there is a 71.4% probability of continuing to rise. Taking the rise of the S&P 500 index since 2023 as an example, this means that seasonal factors in September may not have a negative impact on U.S. stocks, and the market is still expected to continue its upward momentum.
Secondly, Fed Chairman Powell recently warned that the Fed will continue to pay attention to economic data and is ready to keep interest rates high to curb inflation. However, analysis by the BMO team shows that high interest rates do not necessarily mean that US stocks will inevitably go lower. Past data shows that when the 10-year US Treasury yield is below its three-year average, the S&P 500 index will rise by 10.6% in the second year; and when the yield is above its three-year average, the S&P 500 index will rise by 8.6% in the second year. Therefore, even if the US Treasury yield remains above average, if it starts to decline, US stocks are still expected to achieve double-digit gains.
Third, recent data shows that analysts have raised their earnings forecasts for the remainder of 2023 and the full year of 2024. Since the third quarter of 2021, there has been no adjustment in earnings expectations in the first two months of each quarter, which is considered a good sign for a company's future earnings and stock prices. This good news further supports expectations for rising U.S. stocks.
In summary, although the US stock market fell in early September, Wall Street bulls believe that three factors will continue to support the US stock market and are expected to bring double-digit gains. Historical data, US Treasury yields and upward revisions to earnings forecasts all provide strong support for the future trend of US stocks. Investors should pay close attention to market dynamics and seize investment opportunities to achieve better investment returns.
