Uptober is Here: 5 Reasons for Optimism

A Complex Market Environment

The past few months on Wall Street have been confusing, complex, and often contradictory. On the one hand, U.S bond yields have reached their highest level since 2002, oil prices have soared, the War in Iran has yet to conclude, and market breadth (participation) has been atrocious. Meanwhile, the major market indices have been extremely resilient. For instance, in the normally seasonally brutal September, the Nasdaq 100 Index ETF (QQQ) gained 3%. The tech-heavy index is now less than 1% away from all time-highs.

Instead of relying on gut feel and news headlines, investors should rely on historical data sets. From this perspective, bulls may be in for a pleasant fall surprise. Below are 5 reasons why.

1.      Breadth Washout: Bluekurtic Market Insights (@Bluekurtic) notes that fewer than 42% of S&P 500 stocks are above their 200-day moving averages. “In prior cases, SPX was higher 5 days later 100% of the time.”

2.      AI Growth Remains Robust: Micron (MU) is one of the best barometers of the strength of the AI boom. Wednesday, Micron delivered a massive earnings report, including record profits. Micron is now generating a blistering $553 million in revenue per day! Read more about Micron’s earnings here.

3.      October Seasonality Is Not So Spooky: According to data from Ryan Detrick of Carson Investment Research, October is the strongest month of the midterm-year seasonality calendar. Better yet, November is the second strongest.

4.      Treasury Yield Recency Bias: The biggest fear on Wall Street currently is that the 30-year Treasury yield is over 5% (which can mean lower valuations). However, as Charlie Bilello of Creative Planning points out, “That seems really high until you zoom out and learn that the yield was actually higher than this every single day in the 1980s and 92% of days in the 1990s.”  Despite perceived high yields, these two decades were fantastic times to be long U.S. equity markets.

5.      Tech Valuations are Reasonable: Despite the hype around AI and tech stocks, their valuations remain reasonable. In fact, Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT) all have price-to-earnings ratios that are below 30x.

Bottom Line

While market contradictions and macro headlines can spark investor anxiety, historical data and strong fundamentals suggest bulls have plenty to cheer about this fall.

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This article originally published on Zacks Investment Research (zacks.com).

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