By Senad Karaahmetovic
Stephen Suttmeier, Bank of America technical research strategist, sees the potential for strong returns in the S&P 500 after NYSE-listed stocks had a 90% up day on Tuesday.
This is a bullish technical signal, Suttmeier reminds clients, with the S&P 500 able to deliver “solid returns” in the following 65 days.
“Looking beyond 65 days, strong SPX performance continued from two quarters to a year after the 90% up day. Forward two-quarter returns show the SPX up 87% of the time with average and median returns just shy of 11%. The SPX is up 85% of the time on an average return of 15.5% (17.6% median) one year after this signal,” Suttmeier wrote in a client note.
The strategist also addressed investor concerns that the S&P 500 can only stage a good really if the trailing P/E is low. Suttmeier doesn’t agree with this notion.
“Historically, the average rally that starts with a P/E of 19 or more is 88.7% over 28 months. The median rally is 105.1% over 22 months. Average and median annualized returns are 22.9% and 24.5%, respectively, which compares well to the annualized returns for rallies that start with a P/E below 10,” the strategist added.