8 different areas have taken turns leading the latest bull market in stocks – and that diversity is part of what makes the climb so sustainable, says one Wall Street chief strategist

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  • The bull market in stocks is not being driven by one dominant sector, according to a Thursday note from Leuthold Group’s James Paulsen.
  • “It looks like a self-sustaining bull” as the rally in stocks rotates to different areas of the market, Paulsen said.
  • These are the 8 sectors that are driving a healthy bull market rally in the stock market, according to the note.
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A common saying on Wall Street is “sector rotation is the lifeblood of a bull market,” and Leuthold Group’s chief investment strategist James Paulsen seems to agree.

In a Thursday note, Paulsen highlighted the eight sectors that are driving a healthy rally in stocks since the March 2020 pandemic low, creating “a self-sustaining bull.”

Those areas of the market that have helped drive upside in the stock market while not consistently driving the action include: value, growth, cyclical, price momentum, high quality, small cap, emerging markets, and high beta, according to Paulsen.

“Although each of these has had its day in the sun, no single investment attribute has persistently dominated since the bull market began after the March 23, 2020 bear market low,” Paulsen explained.

While growth, quality, and momentum drove the bull market in its early days last year, leadership in the stock market has more recently been taken over by cyclicals, value and small caps.

“The stock market hasn’t yet been monopolized like past bull markets,” Paulsen said, pointing to examples like energy in the 1970s, technology in the 1990s, and financials in the early 2000s. Instead, the market has trended higher, regardless of which area of the market is leading at any particular time, which is a healthy characteristic of market uptrends.

The only sectors that have failed to lead the market higher in this bull cycle are defensives, like utilities and consumer staples.

“Not surprisingly, ‘playing defense’ in this Bull has proven to be a chronic loser,” Paulsen said.

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The stock market could soar 40% as the bull market enters its 3rd inning, Wharton professor Jeremy Siegel says

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  • The bull market in stocks is just getting started, according to Wharton professor Jeremy Siegel.
  • Siegel said the stock market could surge 40% from here before it stages a 20% correction.
  • “I have never seen a Fed Chairman so dovish,” Siegel said of Jerome Powell in an interview with CNBC.
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The bull market in stocks is just getting started as it enters its third inning, Wharton professor Jeremy Siegel said in an interview with CNBC on Thursday.

Siegel said the stock market could surge 30%-40% from current levels before it stages a 20% correction. The bullish backdrop for Siegel is partly based on Fed Chairman Jerome Powell, who has been steadfast in recent weeks that the Fed is not planning to raise interest rates anytime soon despite growing evidence that a strong economic rebound from the COVID-19 pandemic is materializing.

A 30%-40% jump in the S&P 500 from current levels would see the index trade in a range of 5,322 and 5,731.

Siegel expects a strong inflationary year of 4% to 5% as increased demand and supply chain disruptions lead to a boost in prices. Powell views the expected jump in inflation as temporary.

“I have never seen a Fed Chairman so dovish,” Siegel said of Powell. Siegel expects that a rise in inflation and interest rates amid a booming economy will ultimately force the Fed’s hand, leading them to raise the fed funds sooner than expected.

But even in that environment, Siegel reminded viewers that in an economic environment dominated by a jump in growth, inflation, and interest rates, investors want to own stocks, which represent a claim on real assets like land, trademarks, and businesses.

“Enjoy this ride [because] it’s going to keep on going,” Siegel said of rising equities, before adding that he sees stock market gains extending through the end of 2021 at least. “I would not be cautious [on stocks] right now,” Siegel said.

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The bull market in stocks is heading into its second year, and history suggests a 17% gain could be in store

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  • This week is the one-year anniversary of the end of the fastest bear market on record and the start of a new bull.
  • With the bull market about to enter its second year, LPL looked at historical data to gauge how stocks may trade over the next 12 months.
  • The second year of a bull market tends to build upon its gains, rising an average 17% following a bear market decline of more than 30%, according to LPL.
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It’s been one year since the stock market found its bottom amid the fastest bear market on record, in which the S&P 500 fell more than 30% amid the COVID-19 pandemic.

One year later, the bull market in stocks is alive and well, with the S&P 500 rising as much as 75% to new record highs since the bear market low on March 23, 2020. That’s the strongest start to a new bull market on record, according to data from LPL.

Now entering its second year, the bull market will likely build upon its gains and continue to move higher with some volatile swings along the way, according to a Monday note from LPL.

Since World War II, bull markets that began after a sharp bear market decline of more than 30% saw average second year gains of 17%, LPL highlighted. But a pickup in volatility is likely, with an average 10% sell-off in the second year of a bull market, according to historical data analyzed by the firm.

The bull market that began in 2009 saw a similar start to the current bull run, gaining 69% in its first year. In its second year, stocks managed to gain 16% despite suffering a brief 17% sell-off.

“Considering the current bull market reflected the best start to a bull market ever, this could open the door for an above-average pullback during year two,” LPL said.

If an above-average pullback does occur during the second year of the current bull market, LPL recommends investors consider “buying the dip”. The firm has high confidence in stocks due to the current pace of vaccine distribution, fiscal and monetary stimulus, and a robust economic recovery.

And as to whether a rise in interest rates will lead to a large contraction in stock valuations, “we see that as unlikely,” LPL said. The firm reiterated its year-end S&P 500 price target of 4,100, representing potential upside of 5% from Friday’s close.

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Buy stocks and sell bonds as a new secular bull market delivers double digit returns, Ned Davis Research says

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  • Stocks are in a secular bull market that should deliver double digit returns going forward, Ned Davis Research said in a note on Thursday.
  • To take advantage of the environment, investors should sell bonds and buy stocks, NDR advised.
  • “We’ve seen a reset of the secular bull market that started in 2009,” NDR said.
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Investors should reduce their allocation to bonds and use those proceeds to buy stocks, Ned Davis Research said in a note on Thursday.

The research firm said a bullish uptick in the global breadth of earnings growth favors stocks more than bonds, and technical momentum indicators are also exhibiting signs of strength for equities.

And excess liquidity, which will likely continue as Congress considers passing another $1.9 trillion stimulus package, supports “the prospects for more double-digit returns,” NDR said, adding that the market expects economic growth to be revived by the easy financial conditions. 

Consistent with secular bull markets, the S&P 500 has now advanced for 72 days without a 5% correction, and 227 days without a 10% decline, NDR highlighted. 

And the current rally in stocks could go on for a lot longer.

“With the secular bull resuming, the rally could be expected to continue for another 878 days before it would reach the mean number of days without a 20% decline in a secular bull,” NDR said. 

Despite the bullish outlook, NDR warned that valuations are stretched, based on recent records in the market cap to GDP ratio. 

“While the valuations and ratios are consistent with a secular bull, their stretched levels warn that the bull has been getting mature,” NDR said. Inflation is another indicator investors need to keep a watchful eye on as stocks move higher, the note said.

“While it now appears likely that another secular bull upleg is underway, warranting maximum exposure to equities, the secular potential may again be in question if reflation leads to overheating, moving the central bankers and bond vigilantes to lower the temperature,” NDR said.

But between now and then, “there should be substantial time and upside potential for equities to continue trending higher,” NDR concluded. 

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Markets have had their ‘Santa Claus rally’ but a strong economy could drive stocks even higher, veteran Wall Street bull Ed Yardeni says

Ed Yardeni
  • Stock markets had an early “Santa Claus rally” in November, but veteran bull Ed Yardeni believes there’s more to come next year.
  • “November was one of the best months ever for the market,” the Yardeni Research boss told CNBC. “It broadened quite dramatically the small-cap and mid-cap stocks. It was just a great, great month for the market.”
  • The disappointing November jobs report shouldn’t worry investors, according to him, because it suggests the first quarter will avoid a double-dip recession.
  • Coordinated global monetary policy will continue to enable a bullish backdrop for stocks, he said.
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Stock markets may have massively outperformed in November, but expansionary monetary policy could drive them even higher next year, longstanding bull Ed Yardeni told CNBC.

“The market already had its Santa Claus rally,” he said on CNBC’s “Trading Nation.”

“But it just keeps going up anyways, and no matter how much you try to look at it fundamentally, I think the fact is there is so much liquidity with interest rates so low driving the market higher.”

The benchmark S&P 500 index ended November up 11.8%, notching its best monthly performance in 33 years. Its gains reflected optimism around COVID-19 vaccine development and a resolution to US presidential election uncertainty.

“November was one of the best months ever for the market,” Yardeni said. “It broadened quite dramatically the small-cap and mid-cap stocks. It was just a great, great month for the market.”

However, a record number of coronavirus cases in the US and the disappointing jobs report for November is fuelling concerns over the pace of economic recovery. US employers added only 245,000 jobs in November, far lower than the 460,000 expected.

Yardeni, however, believes a ‘V’-shaped recovery is in progress.

Read More: Goldman Sachs says buy these 19 beaten-down stocks on its ‘holiday shopping list’ that are poised to break out in the 1st quarter of 2021

“I really wasn’t that disappointed,” he said of the jobs figure. “Government had a drop of almost 100,000 [payrolls] because census workers just had part-time jobs. Excluding that, we were up over 300,000. Wages were up, and the workweek held up pretty well.”

Not only does he believe the US economy will bounce back sharper by spring next year, but that global monetary policy will enable a bullish backdrop for stocks.

“You’ve got the major central banks just pouring liquidity,” he noted. “I’m not just watching the Federal Reserve balance sheet every week. I watch the ECB, and the Bank of Japan. They’re all continuing to expand their balance sheets.”

Aside from his optimism for the stock market, he recognized the need for further federal aid for individuals and businesses that endured the worst of their fears this year.

“There are a lot of people who have been left behind,” he said. “Either they lost their jobs and now are being threatened with possibly losing their unemployment insurance. And then, of course, there are a lot of businesses who barely survived the first and second waves of this pandemic.”

Read More: Billionaire investor Ray Dalio breaks down how US debt and money-printing binges have formed a ‘classic toxic mix’ that could set it on a downward spiral towards revolution and civil war

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