Stock Market Outlook: 5 Reasons the Market Rally Will Broaden in 2024

The “Zweig Breadth Thrust” indicator has recently signaled a quick pivot from oversold to overbought conditions. To top that off, the number of sectors and market indexes recapturing their 200-day moving average is rising. The Dow Jones just flashed a bullish “golden cross” signal this week, right after seeing a bearish “death cross.” Investors who keep focus on the fundamentals can expect, and even profit from, bear-market rallies without assuming the next bull market is at hand and paying a heavy price when the bear returns instead. Declines large enough to qualify as bear markets often take place as a result of deteriorating fundamentals, whether the ultimate cause is a housing market crash, a pandemic, or merely a recession. Snap SNAP stock sank after the firm struggled to generate revenue through advertisers and user monetization in the second quarter.

1. How can investors determine whether a current upward movement is a dead cat bounce or a market reversal?
2. Short-term rallies last for days or weeks, intermediate-term rallies last for months, and long-term rallies can last for years.
3. The S&P 500 is certainly facing plenty of risks over the next 12 months, but the market has successfully navigated a minefield of risks so far in 2023.
4. In addition, improved investor sentiment can cause broader gains in a range of stocks and sectors beyond the company that reported the earnings.

If the overall stocks rise in a given week, we can call it a stock market rally. This period is a good entry point for day traders, who might decide to follow the trend or go short (after careful analysis, of course). As a stock market declines due to a poor business and economic climate, money pours into stocks due to perceived good news. However, the price rally is short-lived as the overall macroeconomic situation is still poor.

What a Stock Market Rally Means for Investors

The example chart above shows the rally after the announcement of low interest rates and mass government stimulus after the Coronavirus outbreak in 2020. A positive rating from an analyst implies that their research has been favorable and suggests an opportunity to make profits by investing in the stock. Because of this, analysts’ ratings tend to affect the demand for stocks, which subsequently drives up the share price and sends the market into a rally. As such, analyst ratings are important in how stocks perform in the financial markets. A sectoral rally happens when all stocks within a certain industry rise together due to increased investor sentiment. A sector rally is when stocks within a particular industry or sector rise together due to industry-wide trends.

Stocks can rally for different reasons, like when companies release strong earnings reports or analysts give the stock a positive rating. There are also different rallies, depending on how long stock prices stay high. Short-term rallies last for days or weeks, intermediate-term rallies last for months, and long-term rallies can last for years. If you want to learn more about analyzing the stock market and making profitable investments, sign up for our Liberated Stock Trader Pro training course today. An increase in prices during a primary trend bear market is called a bear market rally. Bear market rallies typically begin suddenly and are often short-lived.

More than anything, this review of stock market rallies should help reaffirm a longstanding tenet of long-term investing. Just don’t try to time a bottom, top, or the right time to join a rally. While bull markets can last for different durations, it’s important to remember that prices can change direction at any time. Your interest in a rally could vary depending on the style of trading you prefer. For example, if you’re a scalper – who prefers to hold a position from seconds to minutes – you might only focus on a much shorter period of the rally. Whereas if you’re a position trader, who focuses on much longer-term movements, you might aim to trade the upward movement for weeks or months.

“The most logical answer is continued operating leverage in Big Tech and a surge in consumer spending, since wage gains now exceed inflation. It is hard to put an S&P price on that dynamic, but another 5-10 percent gain seems reasonable,” Colas says. Wall Street analysts currently have an average 12-month S&P 500 price target of 5,034, suggesting about 14.1% upside from current levels. That price target also reflects consensus expectations that the S&P 500 will break above its January 2022 peak of around 4,818 and make new all-time highs within the next year. In 2011, the S&P 500 dropped 19% from its highs following S&P’s U.S. credit downgrade. Investors got even more troubling news on the credit market in August when Fitch Ratings downgraded its rating on U.S. debt from its highest rating of AAA to AA+.

What Causes a Dead Cat Bounce?

The fact is that there is no simple answer to spotting a market bottom. As mentioned above, most of the time a dead cat bounce can only be identified after the fact. This means that traders that notice a rally after a steep decline may think it is a dead cat bounce when in reality it is a trend reversal signaling a prolonged upswing. Consider the situation of the market when investing, especially if you’re into equity mutual funds since these investments are significantly affected by the mood of the market. Instead of placing lump sum bets, exercise caution when there’s a bullish market rally.

What is a bull market rally?

But the most popular and useful one is to use one of the several free screening tools (Yahoo Finance, Barchart, and Webull for example). He is also a staff writer at Benzinga, where he has reported on breaking financial market news and analyst commentary related to popular stocks since 2014. Mr. Duggan is also the author of the book “Beating Wall Street With Common Sense” and has contributed news white label payment gateway reseller and analysis to U.S. News & World Report, Seeking Alpha, InvestorPlace.com and The Motley Fool. Mr. Duggan is a graduate of the Massachusetts Institute of Technology and resides in Biloxi, Mississippi. “The S&P 500 is more likely to hit 5,000 by the end of this year than dip below 4,000, as companies are showing a remarkable ability to beat earnings expectations even with interest rates over 5%.

Stock market rallies are fueled by strong earnings reports, improved economic outlooks, and positive news about a company’s products or services. Additionally, stocks can rally as investors buy in anticipation of future growth prospects or speculation on the potential success of a new business venture. At first, a bear market rally looks like a good thing as it serves as a respite from an otherwise downward direction of the market. However, it can be risky for investors who buy stocks, thinking that things will improve over time. They may end up losing money when the rallies end and the market resumes its downward spiral.

Analysts may attempt to predict that the recovery will be only temporary by using certain technical and fundamental analysis tools. A dead cat bounce can be seen in the broader economy, such as during the depths of a recession, https://traderoom.info/ or it can be seen in the price of an individual stock or group of stocks. Higher returns are always a welcome idea, but investors also need to consider the other side of the coin, which is risk management.

The selling continued the next day—with the market falling a further 12%. Securities and Exchange Commission, a bear market occurs when a broad stock market index declines by 20% or more over at least two months. Rallies of various durations can occur before, during, or after even the most severe of bear markets. Lee has been one of the most bullish strategists on Wall Street over the past year, and he nailed the bull market rally in 2023 when most other strategists were worried about a potential recession. “Besides, the fact that we achieved all-time highs itself is a milestone,” Lee wrote, citing the S&P 500’s record close last week. As positive news floods the market, increased investment can cause prices to rise, leading to more buyers entering the market and pushing prices even higher.

As a consequence, this drives the price up further and further until the upward momentum can be identified as a market rally. According to Lee, the stock market got off to a rocky start this year, with the first five trading days of January generating negative returns after a strong Santa Claus rally. When those trading indicators flash negative, it’s typically a bad sign for stocks for the rest of the year. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider.

If the economy has survived the onslaught of soaring inflation and higher interest rates so far, then maybe it will continue. As these risk-tolerant buyers acquire stocks from the risk-averse sellers getting out at new lows, a relief rally often follows, lasting from a few days to several months. Align Technology ALGN stock also rose after the firm posted better-than-expected earnings for the second quarter.

Align also raised its full-year guidance for its top-line margin and operating margin. Against this backdrop, the dynamics of the market’s gains have changed. At the end of May, the Morningstar US Large-Mid Index—a collection of the largest U.S. stocks, one that performs closely in line with the S&P 500—gained 9.6%. However, 9.5% of that gain (or 99% of the total gain) came from the 10 largest stocks. Without their outsized returns, the overall market would have been flat.

A sucker rally, for instance, describes a price increase which quickly reverses course to the downside. Sucker rallies often occur during a bear market, where rallies are short-lived. Sucker rallies occur in all markets, and can also be unsupported (based on hype, not substance) rallies which are quickly reversed. Generally speaking, your reaction to a market rally will depend on the type of market rally that’s occurring.