How to invest during a pre-S&P 5000 pullback: Chartmaster

But David Keller, chief market strategist at StockCharts.com, believes this time is different and the S&P 500 can finally break that hurdle for the first time in 18 months.His chart showed that U.S. stocks were poised for a wild year-end rallyno matter what the naysayers say.

The S&P 500 rose nearly 6% in the six weeks following Keller’s remarks. By the end of the year, over 90% of stocks were above their 50-day moving average, a clear sign of extreme optimism.

Investors appear to have gotten over skiing this winter. The S&P 500 index has been in purgatory for weeks, barely making headway from the 4,769 level it entered 2024 with.

The index finally broke out on Friday, hitting an all-time high of 4,839. Unfortunately for bulls, Keller believes the market outlook will get worse before it gets better.

“Right now I think it’s weak in the short term, but still strong in the long term,” Keller told Business Insider in a recent interview.

History tells us that stock prices are in a period of decline.

The S&P 500 may be stuck in a quagmire, but Keller is confident it will soon find its way.

“One of two things is going to happen: Either it goes above 4,800 and then rises above 5,000, or it goes below 4,700 and starts to fall, indicating weakness,” Keller said. It was explained on December 18th, before exceeding. “And I’m more of the latter camp and think we did a back-and-fill after the rebound we saw in the fourth quarter.”

Chartmaster predicted that the index will return to the 4,450 level in the coming weeks. An 8% decline is certainly unwelcome, but it may be necessary to improve future returns.

“I think the pullback in the first quarter should be viewed as a long-term buying opportunity first and foremost for long-term investors,” Keller said.

Keller said historical trends gave the stock a tailwind late last year.The year before the presidential election, he said the S&P 500 index Often suffers in the third quarter, then recovers towards the end of the yearthis paper worked almost perfectly in 2023.

But Keller said stocks tend to ring alarm bells early next year. Chartmaster found that in election years since 2004, U.S. stocks have declined three out of five times in January, February and March. A first-quarter decline is likely to be expected again, he warned.

“Expecting it to go higher from here would completely ignore these seasonal trends,” Keller said. “It tends to be quite weak. So I think it’s a rather unstable environment.”

S&P 500 expected to rise heading into summer

Despite the volatile short-term outlook for stocks, Keller believes the medium-term outlook is rosy.

“I think seasonality will be more constructive in the second quarter,” Keller said. “The Fed’s trajectory toward lower rates will become clearer throughout this year. And when that happens, I think we’ll see a return to more bullish territory.”

Keller said the S&P 500 index will likely regain momentum after a brief period of stagnation and move toward the 5,000 milestone in April, May or June. Otherwise, it will be later in the summer, he noted.

“We’ll probably see a rally to new highs in the second or third quarter, and there will be some strength,” Keller said. “Unfortunately, I think we’re going to have a pretty weak September and October. That’s another typical seasonal pattern, but it happens a lot.”

Four regions of the market are poised for a breakout.

When asked which sectors or industries look most attractive amid the impending market decline, Keller pointed out: semiconductor companies beginning.

“There are areas of the market that are doing well, semiconductors come to mind,” Keller said. “So this is an important time to continue what is working.”

especially chip manufacturers Nvidia (NVDA) and Advanced Micro Devices (AMD) were among the best-performing stocks last year, so investors may still view them as prime candidates for capturing upside. Keller is bullish on these names, but for slightly different reasons.

“I think it’s better to own semiconductor stocks because they’re better defensively than because they’re better offensively,” Keller said. “If you think about what happens when markets become volatile, financial institutions rotate into areas that are perceived as defensive areas.”

Keller continued, “And sometimes it has played a defensive role, whether it’s utilities or real estate or consumer goods. Now I think semiconductors are like modern defense. Right? Semiconductors are… “They are the backbone of the modern economy, just like the necessities of life and other necessities of life.” Perhaps things were in a previous era. ”

Keller noted that both Nvidia and AMD have recently collapsed, making it worth the bet. But he said investors who are cautious about their company’s valuations could also take advantage of exchange-traded funds (ETFs) like the VanEck Semiconductor ETF.SMH).

Also quoted by Keller health care As a top idea, Much hyped for 2023 But I was disappointed. Although he did not name his favorite investments in the sector, he said there are positive developments in industries such as pharmaceuticals, medical supplies and devices, and biotechnology.