Is the US stock market expected to reach a new high in 2023?

According to a report released by Bank of America (BofA) on Tuesday,The bond market has just sent a signal that stocks will hit new highs for 2023 before the end of the year.

The bank stressed that the average option-adjusted spread (OAS) on Bloomberg U.S. corporate high-yield bonds hit a new low since the start of the year earlier this month.This means that bond investors are increasingly willing to buy risky bonds.

This is a leading indicator of the stock market because bond investors are usually the first in the market to panic about some kind of macro event that could cause the stock market to declineWhen bond investors panic, they demand higher yields on the bonds they buy

But that didn't happen. On the contrary,highOAS for yield bonds fell to near the lowest level since early 2022.

“We believe this is a leading indicator of bullish risk, which is conducive to the S & P 500 eventually reaching a new high for the year."Constructive credit markets in September supported the bullish seasonal scenario we highlighted," said Stephen Suttmeier, chief equity technical analyst.

DBG ForexThe S & P 500 index hit a year high of 4,607 on July 27 this year.This means that the stock market will have to rise at least another 3.1% from current levels to surpass this level.

As for the factors driving the market higher, Satmir pointed out that,Money market funds 5.62 trillion dollars are likely to flood into stocks, which helps drive a rally in stocks towards the end of the year.Because investors believe money market funds offer a risk-free return of just 5%, while the S & P 500 has returned nearly 17% so far this year.

"With the S & P 500 likely to continue its boom after strong returns in the first half of the year, we wouldn't be surprised to see investors putting money into the market and driving a market rally through the end of the year," he said.

DBG Forex believes that defensive stocks such as utilities and basic consumer goods are falling and breaking through support levels, which also indicates that there is potential for further upside in the stock market. When the broader market falls, investors usually buy these defensive stocks to defend, so the decline in such stocks is also a bullish risk signal.