Don't hold your breath waiting for the end of this bull market in stocks.
The rally that's seen the S&P 500 gain 19% since the start of the year has come on the tails of the second-longest bull market ever. Investors have watched stocks tack on new record after new records for nearly nine years.
But the strength isn't going anywhere, according to Fundstrat analysts. Here are the top reasons the bull will keep running, and some of the best ideas to play it out.
According to Fundstrat, the macro backdrop hasn't materially changed much in the past few weeks and equity markets are in "resilient uptrends," for the long-, intermediate- and short-term. Plus, 10-year bond yields have maintained a narrow trading range.
"One minor technical development to highlight and monitor in the coming weeks," Fundstrat said, "is intermediate-term momentum indicators, tracking 1-2 quarter shifts, given they are showing very early signs of stalling as the S&P 500 nears resistance (~2,700.)" But the analysts added that there is still no evidence of "decay" in the index's price trend, relative performance uptrend or advance-decline line.
More important technical developments, analysts wrote, are at the style, sector and group levels. For instance, technology stocks are already stabilizing after the last one to two weeks of selling off. "Negative divergences can develop at any time but currently there is insufficient evidence to conclude a meaningful reversal is pending between Growth and Value," Fundstrat said. "We recommend monitoring small-cap growth vs small-cap value as one barometer for evidence of a style reversal beginning to develop with the recent November now a key line in the sand."
Finally, value stocks including financial, industrial and energy names continue to "show evidence of bottoming longer-term in absolute price, suggesting breadth is expanding to more cyclical groups heading into 2018," analysts noted.
As for the best ways to maneuver a sustained bull market in stocks, here's what Fundstrat recommends.
- Biotechs: "Select large-caps are buyable at current levels following pullbacks to support." iShares Nasdaq Biotech Index , Biogen Inc. , Gilead Sciences Inc. , Vertex Pharmaceuticals Inc.
- Entertainment Software: "Activision Blizzard Inc. (ATVI) - Get Report and Electronic Arts Inc. (EA) - Get Report are timely after 5-month pullbacks to rising 200-dma's."
- "Reiterating bullish outlook for Nike Inc. (NKE) - Get Report and Walt Disney Co. (DIS) - Get Report as they begin to inflect to the upside from long-term support at rising 200-week/4-year moving average following 2-year 30% pullbacks. (p.27-28)"
- "Trim/reduce candidates: For traders/tactical account, select Industrial Flow Equipment stocks, such as Nordson Corp. (NDSN) - Get Report and Rollins Inc. (ROL) - Get Report , are showing early signs of weakening in relative performance. Reduce exposure."
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