Stock Market: Bullish 100 Days Bring Good News for 2023

Stock Market: 100 Days of Bullish Trading Bring Good News for 2023 

The stock market has taken off in a remarkable fashion, soaring to new heights in the first half of 2023. With gains of nearly 10% since the beginning of the year, investors have witnessed an impressive start to their portfolios. With May 25th marking the 100th trading day, about 40% of the way through the year, it might be an opportune moment to ponder the implications of this performance for the rest of the year! 

How has the S&P Performed in 2023 so far? 

Investors can finally breathe a sigh of relief after a tough 2022. The stock market has risen by almost 10% this year, and new research suggests that more gains may be on the horizon.

As of May 31, 2023, the S&P 500 is up 7.5% year-to-date, closing at 4,154.52. The technology sector leads the market with a 21.7% gain, followed by communication services (up 15.2%) and consumer discretionary (up 13.5%). On the other hand, the energy sector has performed poorly, down 15.1%, and the materials sector is down 5.1%. 

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Positive Signs in the First 100 Days of 2023 

According to Jeffrey Buchbinder, chief equity strategist for LPL Financial, historical data since 1950 shows that when the S&P 500 gained at least 7% in the first 100 trading days of a year, it tends to achieve an average gain of 9.4% for the rest of the year. This year, the S&P 500 has already risen 8.1% by the end of the 100-day period, suggesting a positive outlook for the next seven months. 

Buchbinder emphasized that this pattern of strong starts leading to solid finishes has been consistent over the past seven decades, with the market experiencing losses in the second part of the year on only three occasions out of the 26 years with at least a 7% gain in the first 100 trading days. 

However, Buchbinder also recognized the potential economic challenges, such as the possibility of a recession. Therefore, he tempered his optimism and set a more conservative target of around 5% gains for the remainder of 2023. 

What’s Propelling the U.S. Stock Market’s Rise? 

The impressive performance of the stock market thus far in the current year raises an intriguing question: Despite the prevalence of negative news, what is the driving force behind the upward trajectory of U.S. equities? Considering the substantial rate hikes by the Federal Reserve, the markets are certainly not undervalued. However, several factors can shed light on the positive returns: 

Stock Market: Bullish 100 Days Bring Good News for 2023

1. Narrow Advancement:  

Understanding the data requires a deeper analysis. Market indices, although not necessarily equally weighted, are weighted using a specific methodology, which obscures important details. For instance, the market-capitalization-weighted S&P 500® Index returned 9.18% year-to-date until April 30.  

The remaining 493 stocks collectively contributed a return of 1.95% during the same period. This is significant because if you don’t own those 10 stocks, or if you own them but not in the same proportions as the index, your investment portfolio will perform differently, potentially to a significant extent. This disparity can work in favor of or against your returns. 

2. The Significant Pause:  

The crisis in regional banking, declining inflation, and a broader decline in economic indicators suggest that the Federal Reserve may have halted its series of rate hikes. In early May, futures markets indicated the possibility of a rate cut as early as July. Lower interest rates benefit equities overall and particularly favor companies with growth-oriented profiles that rely heavily on future cash flows.  

Notably, there has been a shift in market leadership this year, with technology companies taking the lead after energy companies performed well in 2022. This sudden change in market leadership has hindered the returns of momentum-based strategies. 

3. Market History:  

Historical patterns demonstrate a strong tendency for markets to recover following a sharp decline. Since 1926, the average market returns in the years after a decline of 20% or more have stood at 22.2% (see Exhibit B). Considering that the S&P 500 experienced a loss of over 18% last year, its 9.18% gain so far this year until April 30 aligns with this historical trend. 

Here are some additional thoughts on the stocks that have contributed to the upward movement of the S&P 500 this year: 

1. Market Capitalization:  

These 10 favored stocks collectively represent a significant portion, accounting for 24.5% of the total market capitalization of the S&P 500. 

2. Performance:  

On an equal-weighted basis, these favored stocks in the S&P 500 have delivered an impressive return of 41% for the year until April 30. However, it’s worth noting that they experienced a substantial decline of 43% in 2022. 

3. Valuations:  

These stocks are high-growth and relatively expensive compared to other options in the market. With an average forward price-to-earnings (P/E) ratio of 37, they indicate a higher valuation. In comparison, the Russell 1000® Growth Index has a P/E ratio of 24, and the S&P 500 has a P/E ratio of 18. On the other hand, Mercer Advisors’ Global Multifactor Equity Portfolio, which incorporates value, momentum, and minimum volatility factors, has a lower valuation with a weighted forward P/E of 14.6.  

The strong returns in the energy sector last year also influenced momentum strategies with strong value characteristics this year. It’s surprising that valuations haven’t declined further, considering the significant increase in interest rates over the past year. Learn How do policy decisions impact the stock market with real examples.

Considering the high interest rates in the current environment, converting forward P/E ratios to earnings yields helps understand the returns offered by these stocks. The earnings yield is calculated by dividing one by the P/E ratio. For these favored stocks with a forward P/E ratio of 37, the average earnings yield is 2.7% (1/37). In comparison, six-month Treasuries currently yield 5.1%, indicating a higher return than the average earnings yield of the favored stocks. 

How has Tech Stocks Performed in 2023? 

Tech stocks are thriving in 2023, outperforming the broader market.  

The Technology Select Sector SPDR Fund (XLK) has gained 16.4% year-to-date as of May 31, while the S&P 500 has risen only 7%. This strong performance is attributed to factors such as optimism about the Federal Reserve's rate hike cycle, relief over the U.S. debt ceiling, and better-than-expected quarterly results from major tech companies like Apple, Microsoft, and Google. 
Stock Market: Bullish 100 Days Bring Good News for 2023

Analysts predict continued impressive returns for tech stocks, with a shift from financial stocks to tech creating a “safety trade” advantage for investors. Despite concerns about valuations, the overall outlook is positive, with a projected 10%-12% growth for the tech sector. 

Prominent tech giants like Microsoft, Apple, Google, and Meta are benefiting from long-term trends such as cloud computing, global iPhone demand, and digital advertising. They also stand to gain from the semiconductor industry's recovery, contributing to a resilient tech trade that is expected to outperform the broader markets. 

Apple’s performance, especially in the iPhone segment, is noteworthy due to its consumer focus. The company continues to expand its installed base and achieve new quarterly records in emerging markets. Apple plans to unveil a mixed-reality headset at an upcoming developers’ conference and release the next iPhone in the fall, further bolstering its position. Strong results reported by companies outside of traditional quarterly periods, such as Salesforce, Palo Alto Networks, Zscaler, and Crowdstrike, are expected to boost investor confidence. 

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Here are some key points from the search results: 

  • Many tech stocks have outperformed the broader market through the first quarter of 2023. 
  • After tech stocks fell 30% last year, 2023 has been a year of recovery in the sector. Alphabet shares have surged nearly 18%, Microsoft has gained more than 15%, and Amazon and Meta are up 21% and 67%, respectively. 
  • The Nasdaq-100 Technology Sector Index has recorded around 20% growth in Q1 2023, but it is still some 30% adrift from its November 2021 peak. 
  • The best-performing tech stocks as of May 2023 include NVIDIA, Salesforce, and Advanced Micro Devices. 
  • Some experts predict that tech stocks will continue to soar in 2023 due to factors such as peak inflation, a pause in the Fed’s rate-hiking campaign, and the growth potential of smaller tech companies. 
  • Investors have poured billions of dollars into tech stocks in 2023, likely lured by the massive returns the sector has posted so far. 

However, not all tech companies are faring well, as weaker companies like Snap, Lyft, and Cloudflare are exposed to a weak economy. Nevertheless, analysts believe that the strong players will continue to strengthen, supported by resilient enterprise and consumer spending and the Federal Reserve‘s likely conclusion of its rate hike cycle. 

What are the Top-Performing Tech Stocks as of May 2023? 

As of May 31, 2023, the top-performing tech stocks in 2023 are: 

  • NVIDIA (NVDA) – up 89.9% 
  • Tesla (TSLA) – up 67.0% 
  • Salesforce (CRM) – up 49.6% 
  • Advanced Micro Devices (AMD) – up 38.0% 
  • Arista Networks (ANET) – up 32.0% 
  • Cadence Design Systems (CDNS) – up 29.0% 
  • Synopsys (SNPS) – up 28.0% 
  • KLA Corp. (KLAC) – up 27.0% 
  • Analog Devices (ADI) – up 26.0% 
  • Ansys (ANSYS) – up 25.0% 
  • GlobalFoundries (GFS) – up 24.0% 
  • Amazon (AMZN) – up 12.2% 
  • Microsoft (MSFT) – up 4.0% 
  • Intel (INTC) – up 4.83% 
  • Alphabet (GOOGL) – up 2.1% 
  • Netflix (NFLX) – up 0.57% 

These stocks have all outperformed the broader market in 2023, which is up 12.0% year-to-date. It’s worth noting that these percentages are accurate as of May 2023 and that the future performance of these stocks may be influenced by a variety of economic and market factors. 

What is the Outlook for the Stock Market for the Rest of 2023?

The outlook for the stock market for the rest of 2023 is uncertain, and opinions vary among experts.

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Here are some key points from the search results: 

  1. The consensus earnings estimate for 2023 is for a 2% contraction, but this estimate is still coming down and could continue to do so. 
  1. Some experts predict that 2023 could be a year of stock market limbo, with a prolonged trading range similar to 1994 or 2015. 
  1. Other experts are more optimistic, predicting that the stock market will resume its march higher in 2023. 
  1. Interest rates on long-term bonds have fallen lower than those of short-term bonds, which may frustrate market bears. 
  1. The Federal Reserve’s ongoing commitment to raising interest rates to cool inflation is likely to lead to weak U.S. economic trends in early 2023. 
  1. After years of low yields followed by a brutal drop in prices during 2022, returns in the fixed-income markets appear poised to rebound in 2023. 
  1. The market predicts the Fed will begin cutting rates in late 2023, while the Fed predicts they’ll begin in early 2025. 
  1. The S&P 500 gained 7% in the first quarter of 2023 and historically has averaged a 12% gain in the 12 months following. 
  1. Market returns tend to be quite positive in years following significant declines, which could bode well for 2023. 

Overall, the outlook for the stock market for the rest of 2023 is uncertain, with some experts predicting a prolonged trading range and others predicting a rebound in the market. Factors such as interest rates, inflation, and earnings estimates will likely play a significant role in determining the direction of the market. Learn How to Trade Stocks Online in Simple Steps!

What industries are expected to perform well in the stock market in 2023? 

In 2023, it is anticipated that multiple sectors will experience positive performance in the stock market. Here are some significant points to consider: 

  • Consumer staples are expected to exhibit strong performance in 2023, as they have historically shown resilience during economic downturns. 
  • Healthcare stocks are considered “defensive” and have the potential to perform well in a recessionary environment. 
  • The communications sector is viewed as an attractive investment option in 2023 due to its growth prospects and stability. 
  • Industrials may experience favorable performance if interest rates remain high throughout 2023. 
  • Precious metals are projected to be a promising investment avenue for funds in 2023. 
  • Based on historical data, the S&P 500 has recorded an average gain of 12% in the 12 months following a robust first quarter. This trend could benefit semiconductor market leaders like Intel, Advanced Micro Devices, and Nvidia. 

Overall, although there is no consensus on the industries that will outperform in 2023, experts suggest that consumer staples, healthcare, communications, industrials, and precious metals hold promise as investment sectors. 

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