Stock market rally enters in the fifth month

The stock market is currently enjoying a five-month winning streak, with the remarkable performance of US stocks in the first quarter continuing albeit with less momentum, leaving investors thrilled with their gains but also anxious about potential corrections. Year to date, the S&P 500 and Nasdaq have surged by 10.11% and 9.3% respectively, while Canada’s S&P/TSX has seen a 5.81% advance.

The relentless rally in the US stock market has resulted in an impressive $4 trillion gain in 2024, a feat not seen since 2013. The rally has persisted for five months, a streak last observed in 2013. The S&P 500 currently stands at 5250, with a forecast from RBC Bank projecting a rise to 5300 by year-end, and Soc Gen expecting levels to potentially reach around 5450. However, technical indicators, including the Relative Strength Index (RSI), are also signaling overbought levels, heightening expectations for an imminent correction. The S&P 500 equal-weighted index shows a price-to-earnings ratio of around 17, surpassing the historical average and pointing to the expensive nature of the markets, but there remains potential for further ascent.

Market sentiment hinges on anticipated rate cuts amid lower inflation and a resilient economy. Central Bank officials, however, continue to demonstrate patience and a willingness to see inflation subdued for at least several months before considering lowering interest rates. Nonetheless, June is believed to witness the first rate cut, with the possibility of only one additional cut in 2024.