The recent sideways trading of markets deserves a short historical study. In the previous three sideways markets, stocks had a dramatic breakout averaging 51% over the next 24 months according to Fundstrat Global Advisors. The stock market is now seeing a broadening of names that are moving higher from small caps to value names in the US. Also, in Japan there are more stocks from a wider range of sectors that are showing promise. These factors point to the possibility of a market rally that could surprise on the upside in Nikkei 225, the S&P 500 and Kospi, the South Korean index that has performed well over the past month. The CNBC article continues….
Fundstrat founder and strategist Thomas Lee says these types of sideways markets have produced unusually strong gains, once they end. He pointed to three instances since WWII when the the market was near all time highs but had minor gains, within 3% over the trailing 12 months or under 5% for 20 months. Those periods were July 1952 to March 1954; May 1983 to December 1984, and November 2014 to July 2016,
“In 3 of 3 cases, the resolution was a strong upside move in S&P 500 … with an average gain of 51% over the next 24 months,” Lee wrote in a recent note. “In other words, ‘nowhere markets’ have been resolved by a massive upside breakout in stocks. This implies we could see the S&P 50 reach 4,500 by the end of 2021. This is pretty eye opening upside.”
We sourced this piece from CNBC in a piece attributed to Patti Domm.