The stock market won’t take a breather just yet. Investors are going to put more money to work there in the near term, according to several indicators.
Since Oct. 28, the
is up 10.8% in a rally lead by value stocks over growth. The economy has continued to recover, almost reaching pre-pandemic levels of output. Earnings have beaten estimates by a wider margin and with a higher frequency than they do historically.
Sure, a surge in virus cases is here, the pace of the economic recovery may be slowing, and there is little indication of more fiscal stimulus before January. But two big biotech companies have said they might have a combined two billion Covid-19 vaccine doses doled out by some point in 2021.
One of the biggest indicators that stocks can keep performing is that more than 60% of market participants surveyed by Evercore think the next 10% move in stocks will be up, not down. That was at 45% in February before the pandemic-induced bear market. The reading gradually reached 50% before it popped in late October. That isn’t necessarily an endorsement of the stock market. Stocks have a greater tendency to rise over time than fall and the survey doesn’t indicate investors think there will be large gains.
Still, sentiment has been pretty strong of late. The American Association of Individual Investors’ survey shows that almost 60% of respondents are bullish. Sentiment can’t go much higher, some think. “That bull boat is crowded,” Peter Boockvar, chief investment officer of Bleakly Advisory, said. “When that boat is crowded the market tends to go the opposite way.”
Unsurprisingly, S&P 500 stocks trading above their 50-day moving average is in the 85th percentile historically, according to Evercore. The strategists at Evercore say that when that happens, the index usually moves higher in the next three months.
Another key factor that could move stocks up in the near-term: Investors are still holding tons of cash. That means they have a lot of capital to put at risk. Total net assets in ICI retail money-market funds is at $1.5 trillion, according to Evercore. That is down from a record $1.6 trillion during the selloff in March, but still up around 28% from roughly $1.2 trillion in early 2019. “That would imply that there is plenty of money on the sidelines to come into the market as sentiment improves,” Evercore’s head of portfolio strategy, Dennis DeBusschere, wrote in a note. Institutional money-market funds are holding about $2.89 trillion of cash, up 28% from February, according to data from the St. Louis Fed.
Sure, there are both bullish and bearish indicators for stocks right now, but positive developments such as timely stimulus, continued vaccine progress or positive economic and earnings surprises, are likely to prompt investors to keep putting money to work.