2023’s Market Surge: Is More Growth Ahead?

The U.S. stock market is gearing up for its historically strongest six-month period, November through April, following impressive gains over the summer months. Traditionally, investors adhere to the “sell in May and go away” adage, but this year’s performance defied that trend. Yet with rising Treasury yields and the looming presidential election, many wonder if the market rally has enough fuel to keep running.

Historically, the November-April period is the best six-month stretch for stocks. Since 1945, the S&P 500 has averaged nearly a 7% return in this window compared to only 2% from May to October, according to Sam Stovall, CFRA Research’s chief investment strategist.

This year, however, has been an outlier. Since April 30, the S&P 500 has surged more than 16%, setting up for the biggest May-October gain since 2009, on top of the previous November-April’s 20% gain. This two-part rally has raised questions about whether the market is due for a slowdown, yet history suggests the momentum could continue. Stovall notes that previous strong gains from May to October have often led to even stronger performance in the following November-April period.

In fact, in the 12 instances since 1945 when the S&P 500 rose over 10% from May to October, it went on to climb an average of 13% in the subsequent November-April period. Additionally, in cases where double-digit gains occurred in both periods, stocks stayed on an upward trend in four out of five subsequent periods, with an average gain of 11%.

Beyond the large-cap S&P 500, the November-April stretch has also been strong for smaller stocks and international markets, including the Russell 2000, MSCI EAFE, and MSCI Emerging Markets indices.

However, election-related concerns and economic pressures are adding uncertainty. Recently, rising Treasury yields have triggered market volatility, with the yield on the 10-year note trading above 4.3%, a level that has challenged stocks in recent months.

“With stocks up 23% year-to-date, many are questioning the remaining upside,” commented José Torres, senior economist at Interactive Brokers. Although this year has seen impressive growth, he pointed out that it trails some recent years like 2021, 2019, and 2013, each of which saw returns ranging from 24% to 30% in the first 10 months. Torres added that for stocks to keep their upward momentum, factors like favorable election outcomes, calmer interest rates, and strong AI-driven earnings could play a role.

Sam Stovall is still optimistic, emphasizing that the market has historically risen through periods of uncertainty, driven by potential interest rate cuts and solid tech earnings.

U.S. stocks closed mostly higher on Tuesday, with the Nasdaq up 0.8% for its 28th record close of the year. Meanwhile, the S&P 500 edged up 0.2%, while the Dow Jones slipped 0.4%.