According to Fundstrat’s Tom Lee, one simple indicator suggests that the stock market has entered a new bull market.
Lee observed that the stock market’s up days rose 65 percent in a rolling 20-day period last week.
“We believe the indicator will soon hit 70 percent, supported by what we think are better-than-expected results,” Lee said.
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There’s a simple indicator that explains why investors might feel like a new bull market for stocks has begun, according to Tom Lee of finance firm Fundstrat in an analysis Monday.
This indicator is the earnings ratio of stocks over a 20-day period, which rose last week to its highest level since November 2021.
āThe stock market is starting to feel like a bull market as the percentage of days up hit 65 percent last week. In the 15-month period from December 2021 to March 2023, this value never exceeded 60 percent and was only 20 percent on October 12, 2022,ā said Lee.
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In other words, stocks are rising more often than they fall, and Lee believes that trend will continue into the seasonally up month of April.
“We believe it will soon reach 70 percent in the coming weeks, supported by better-than-expected first-quarter results,” Lee said.
While stocks have been on a winning streak of sorts for the past month, markets haven’t looked that way over the past six months.
During that period, the earnings ratio between stocks moving up and down was just 46 percent, below the long-term average of 53 percent.
Stocks would rise again in the short term
That explains why investors remain so bearish on sentiment and positioning data, even though the S&P 500 is up around 18% since its mid-October low. “In the last six months, stocks haven’t risen enough to be considered a bull market,” Lee said.
However, with signs of cooling in inflation, the potential for better-than-feared earnings numbers and a Federal Reserve nearing the end of its rate-hike cycle, Lee believes equities are poised for further gains in the near-term.
āThe S&P 500 is up 1% this month and our compilation of the ‘first five day rule’ implies gains of 4% or more than 4250 by the end of the month. That remains our view and we believe the first quarter results will be a positive catalyst,ā said Lee.
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