{"id":21217,"date":"2023-06-11T14:11:53","date_gmt":"2023-06-11T18:11:53","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/heres-the-main-driver-of-the-sp-500s-bull-market-rally-according-to-fundstrats-tom-lee\/"},"modified":"2023-06-11T14:11:55","modified_gmt":"2023-06-11T18:11:55","slug":"heres-the-main-driver-of-the-sp-500s-bull-market-rally-according-to-fundstrats-tom-lee","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=21217","title":{"rendered":"Here\u2019s the main driver of the S&P 500\u2019s bull-market rally, according to Fundstrat\u2019s Tom Lee"},"content":{"rendered":"
\n

The S&P 500 index exited a bear market on Thursday, while a closely watched gauge of stock-market volatility dropped to a more-than-three-year low. Those two things are related, says Fundstrat Global Advisors founder Tom Lee.<\/p>\n

The Cboe Volatility Index
\n VIX,
\n +1.32%<\/bg-quote>,<\/span>
\n an options-derived measure of expected volatility in the S&P 500 over the coming 30 days, traded as low as 13.50 on Friday, its lowest since February 2020. The gauge\u2019s long-term average is near 19. A subdued reading indicates investors are feeling optimistic. The VIX averaged 25 in 2022, while the S&P 500 posted a decline of 19.4%. <\/p>\n

\n

\u201cThe VIX impact is the least appreciated. Our work from December 2022 shows that in last 30 years, post-negative equity year (2022), when VIX is down [year-over-year], the median gain is 22%,\u201d Lee said in a Friday morning note to clients (see chart below).<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

The VIX\u2019s role is larger than the impact from moves in the U.S. dollar, earnings per share or even bond yields, Lee said.<\/p>\n

\u201cVIX trajectory, in other words, was the single biggest determinant at the start of 2023. This seems to be playing out today,\u201d he wrote.<\/p>\n

The S&P 500
\n SPX,
\n +0.11%<\/bg-quote>
\n rose 4.93 points, or 0.1%, Friday afternoon to close at 4,298.86. On Thursday it closed at 4,293.93, its highest close since Aug. 16. Moreover, it finished more than 20% above its Oct. 12, 2022, closing low, meeting widely used criteria that marks the end of a bear market. <\/p>\n

See: <\/strong>S&P 500 exits longest bear market since 1948. What stock-market history says about what happens next.<\/p>\n

The Dow Jones Industrial Average DJIA ended with a gain of 43.17 points, or 0.1%, while the Nasdaq Composite
\n COMP,
\n +0.16%<\/bg-quote>
\n gained 0.2%.<\/p>\n

For the S&P 500, there are plenty of skeptics who see a headfake rather than a newborn bull market. The concentrated nature of the S&P 500\u2019s rally, which has been fueled to an extreme degree by gains for a handful of megacap, tech-related stocks, makes many investors wary because the average stock has been left behind.<\/p>\n

While the S&P 500, which is weighted by market capitalization, is up more than 12% so far in 2023, the equal-weighted measure of the S&P 500 has gained just 2.6%.<\/p>\n

Read: <\/strong>How a hawkish Fed could kill a baby bull-market rally in U.S. stocks<\/p>\n

Others fear an uncertain economic outlook, arguing that a more pessimistic take reflected in the bond market could quickly unravel the stock market rally if it proves correct.<\/p>\n

Need to Know: <\/strong>Stocks would fall right back into a bear market if they adopted economic view of bond market, JPMorgan says<\/p>\n

So now what? Lee said with the VIX below 14, it likely won\u2019t be a driver of future gains. <\/p>\n

Now, the market faces what may be its \u201cmost consequential\u201d week of the year, with the May consumer-price index set for release on Tuesday and the Federal Reserve concluding a two-day policy meeting on Wednesday.<\/p>\n

Fed-funds futures traders have priced in a roughly 72% probability the central bank will leave rates unchanged next week, according to the CME FedWatch tool, pausing after a series of rate increases that took the benchmark rate from near zero to the current range of 5% to 5.25% since March of last year. But they expect the Fed to deliver a hike in July.<\/p>\n

See:<\/strong> Fed might hike interest rates again in June instead of a \u2018skip,\u2019 some economists think<\/p>\n

While the VIX at its current level isn\u2019t necessarily a buy signal on its own, \u201cwe still see upside drivers for the S&P 500 over the next 6 months. The main driver being that inflationary pressures ease faster than consensus expects and at a pace that will allow the Fed to slow its pace of hikes,\u201d Lee said.<\/p>\n

With the caveat that next week\u2019s events are crucial, Fundstrat\u2019s base case remains that the S&P 500 will gain more than 20% in 2023, with the 4,300 level serving as a \u201cwaypoint\u201d that will eventually give way to equity markets making new highs this year, he said.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The S&P 500 index exited a bear market on Thursday, while a closely watched gauge of stock-market volatility dropped to a more-than-three-year low. Those two things are related, says Fundstrat Global Advisors founder Tom Lee. The Cboe Volatility Index VIX, +1.32%, an options-derived measure of expected volatility in the S&P 500 over the coming 30 […]<\/p>\n","protected":false},"author":1,"featured_media":21218,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-21217","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nHere\u2019s the main driver of the S&P 500\u2019s bull-market rally, according to Fundstrat\u2019s Tom Lee | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The S&P 500 index exited a bear market on Thursday, while a closely watched gauge of stock-market volatility dropped to a more-than-three-year low.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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