4 Bullish Signals Point to Further Stock Market Gains Ahead, Bank of America Says

• The stock market’s rally is likely to continue, said BofA technical analyst Stephen Suttmeier.

• Suttmeier highlighted four positive signals suggesting a healthy bull market in a note released Tuesday.

• “The rotation, which is the lifeblood of a bull market, suggests that the SPX reached last week’s highs from a position of strength,” Suttmeier said.

As the stock market hits a series of record highs in 2024, positive signals suggest the recovery can continue.

In a note on Tuesday, Bank of America Technical analyst Stephen Suttmeier said the current bull market is healthy in the context of a large rotation into small company stocks.

“A broadening rally along with a rotation, which is the lifeblood of a bull market, suggests that the SPX reached last week’s highs from a position of strength, not weakness,” Suttmeier said of the S&P 500.

Suttmeier said strong seasonal factors toward the end of an election year, combined with strong technical factors, could help fuel the stock market to record highs later this year.

These are the four bullish indicators that give Suttmeier confidence in a continued market recovery.

1. High yield bond spreads are low

The yield gap between risky corporate debt and ultra-safe Treasury debt shows no signs of worrying the broader stock market.

When investors become concerned about the economy and the market as a whole, they typically demand higher yields on risky high-yield bonds relative to risk-free Treasuries, causing credit spreads to soar.

“That credit spread remains narrow, which is a positive sign,” Suttmeier said.

1. Corporate bond spreads are tight

Similar to the signal from junk bonds, the chart below measures the yield difference between higher-quality corporate debt and 10-year U.S. Treasuries.

“The BAA spread remains benign (i.e. at risk) below 2.0,” Suttmeier said.

The spread hit 1.38 in April, its lowest level since 1995. It currently sits at around 1.58, well below the 2.0 level that Suttmeier said represents a “risk-on” environment for stocks.

1. $6 Trillion in Cash Is a Bullish Signal

Investors hold Record $6 trillion invested in money market funds is a contrary bullish signal, according to BofA.

That money could fuel a continued rise in the stock market, especially if the Federal Reserve cuts interest rates, making the current 5% yield on cash less attractive.

Such a scenario would likely lead investors to assess their cash position and ultimately consider buying stocks.

1. Fed Financial Conditions Confirm Recovery

According to Suttmeier, the new highs recorded in the stock market in recent weeks were confirmed by new cyclical bull market highs for the Chicago Fed’s National Financial Conditions Index.

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This is a healthy signal that should support sustained gains in the market.

The financial conditions index last caused a major negative divergence toward the end of 2021, when the S&P 500 was rising even as the financial conditions index…