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Stocks are having a strong November after a string of tough months.
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Vada Research says there are some factors investors should be aware of as they chase the rally through the end of the year.
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Big tech remains attractive and sectors such as airlines and hotels could benefit from consumer spending that remains strong.
There could be an end-of-year rally for the stock market, and there are three things investors should pay attention to if they plan to chase gains, according to Vanda Research.
The recent upward trend is at odds with some forecasters’ expectations for the broader economy, with multiple regions showing signs of slowing. The labor market appears to be slowing, while retail sales fell in October for the first time since March.
But there is still room for stocks to rise before investors start pricing in a recession, according to Vanda Research Vice President Jay Malhi.
“The data doesn’t point to a recession either (at least not yet), which could provide a short-term landing point for rising risks,” Malhi said, outlining three key themes for investors to consider if they plan to capitalize on the end of the year. Gains in the stock market.
Here are three things investors looking to chase any stock rally through the end of 2023 should keep in mind.
1. Chasing big tech
“They chased the huge rise in the technology sector, although there was a hint that it was becoming a more crowded business,” Al-Malhi said.
Other Wall Street forecasters have warned In exchange for investing in huge technology stocksThis is because of the risk of overvaluing these companies. Which Seven greats The stocks — a group of 7 massive technology companies that have surged this year on Wall Street’s excitement over artificial intelligence — generated most of the gains for the S&P 500, a trend that is unlikely to continue, according to some analysts.
But much of the Magnificent Seven’s recent gains have been driven entirely by retail investor buying into Tesla. Excluding Tesla’s purchases from those in the rest of the group shows that the massive technology sector still has room to rise, according to Vanda.
More hedge funds also pulled short positions on Magnificent Seven shares, while building short positions in the broader S&P 500, according to Vanda data.
2. There are less crowded deals out there
Investors should be wary of less crowded trades.
Airline stocks may fit the bill here, Malhi said. Although US consumers pulled back on spending last month, the weak performance in airline stocks was due in part to higher oil prices, which pushed up costs.
but Crude prices have declined in recent weeksAl-Malhi said this may make the aviation industry more attractive.
Meanwhile, short positions in airline stocks are approaching a two-year peak. Al-Malhi suggested that this could be a possible sign that investors are too pessimistic about the industry.
“This is where the short-term opportunity for airlines looks most compelling,” he added.
3. Be aware that there is a short opportunity for the stock to rise
Al-Malhi warned that the gains may be strong but fleeting, and investors may not be able to keep up with the rise in stocks for a long time. This is because the market may soon start pricing in a slowdown in the US economy, reflecting the weakness of the potential upside in 2024.
“To be clear, there is a short path in which stocks can rise, between now and when the market is considered a recession,” Al-Malhi said.
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