A 39-year market veteran shares why this market rally is only beginning and stocks are destined to hit new record highs in the coming months — and the 5 best ways to take advantage of it
- The recent market reset is setting up for a strong fourth-quarter rally, according to Tim Hayes.
- The global strategy chief shared his bullish market outlook while others recommend staying cautious.
- Here are the five best ways to position for new record highs this year, in Hayes’ view.
According to the chief global investment strategist at Ned Davis Research, US stocks will reach new all-time highs by the end of the year after taking a late-summer breather.
Tim Hayes, a market veteran of over 39 years, is encouraged by the S&P 500’s brief 4% decline. The index had risen for two and a half months prior to August, and investors were becoming overly optimistic.
Hayes believes that a healthy reset removed much of the euphoria without causing long-term harm. He now believes that the groundwork has been laid for a march to record highs in the fourth quarter.
“By the end of September, I think the market would be well-positioned to take advantage of what tends to be the best period of year from a seasonal standpoint — the last three months of the year,” Hayes said in a recent Insider interview.
Hayes went on to say, “Having corrected the optimism is what I call a healthy development in order to set up a renewed rally.”
History says this market rally has plenty of room to run
According to Hayes, the final three months of the year have historically been the most favorable to stocks. Given that the S&P 500 is only 7.4% away from a new record high, investors can reasonably expect the index to break new ground by closing above 4,800 by 2024.
“We can’t say when, but once we get past September — into October, November — we should be back to new highs in the fourth quarter,” Hayes said.
Not all strategists agree with Hayes. Indeed, Morgan Stanley equity chief Mike Wilson’s S&P 500 target suggests that US stocks could lose all of their gains from this year. Others, such as veteran technical strategy chief David Lundgren, believe that new records will not be set until 2024.
While Hayes does not have a crystal ball, he is confident that his prediction is correct. He compares the current market environment to late 2020 or early 2021. If he is correct, history suggests that US stocks will rally much further than they have already, given that bull markets tend to last much longer and run much higher than they have since the market bottomed in late 2022.
“It doesn’t exactly follow the script,” Hayes said. “But I think things are starting to look like they did after the last bear market.”
According to Hayes, the next six months should be smooth sailing for US stocks, though volatility could spike next year ahead of the presidential election. According to him, there is a 10% correction every two years on average, and political volatility after the first quarter, combined with complacency, could spell trouble. However, investors don’t have to worry about that right now.
“You get a good year-end rally, you get into next year, and sentiment is stretched again,” Hayes explained. “Perhaps we’re on the verge of another correction, perhaps a bigger one than we had this year.” But that doesn’t mean the bull market has to come to an end.”
5 top places to invest money now
Hayes has an overweight rating on US stocks, after keeping them at arm’s length with an underweight rating last year. The market veteran’s optimism about US stocks, however, comes at the expense of their international counterparts.
Unlike some of his contemporaries, Hayes is wary of Chinese and emerging-markets stocks, which he downgraded from overweight to marketweight in mid-August. Outside of the United Kingdom, he is also neutral on Japanese companies and European equities. He’s also staying away from stocks in the United Kingdom, Canada, and the Pacific outside of Japan.
Instead, Hayes is supplementing his bullish call on US stocks with bullish calls on small caps, consumer discretionary, industrials, and technology.
According to the strategist, the upcoming market rally will broaden, boosting parts of the market that haven’t participated as much, such as economically sensitive small companies and sectors. Discretionary is one of the few sectors that has gained ground in the last month, and while industrials remain stuck in mud, Hayes believes they are a good bet if economic growth continues.
According to Hayes, technology stocks have consistently outperformed this year. While he is concerned that persistently high interest rates will weigh on their elevated valuations, he expects the group to benefit from the near-term upside.
