S&P 500 Nears 2,500: 5 Stock Picks For Big Profits

On Sep 14, the U.S. market’s broadest benchmark homed in on the crucial 2,500 mark during a relatively quiet session of trading. This was the second successive record close for the S&P 500, a feat matched by the two other primary gauges of market performance. Of course, underneath the cautious optimism, wariness about a near-term pullback continued to linger.

However, analysts at independent broker LPL Financial believe that after a five-month streak of wins, the S&P 500 is on track to mop up further profits this month. Further, the index has nearly always gained in the one-year period immediately following this winning streak. This makes it imperative to pick up S&P 500 stocks, which have mopped up strong gains during this period.

Third Strongest Bull Run for S&P 500

The S&P 500 gained 0.1% on Sep 13, ending at 2,498.37, only marginally short of the 2,500 mark. Since March 2009, the index has gained a stunning 269%, eclipsing the 266% increase recorded during the Bull Run extending from 1949 to 1956. This increase makes the current Bull Run the third strongest ever recorded. These insights were revealed by data from Bloomberg and the S&P 500 Dow Jones Indices.

Although the extent of these increases could raise selloff fears among investors, such alarm is unwarranted. But this is because this stretch of gains loses its luster when considering annualized returns. This measure comes in at only 17%, the fourth poorest when considering 13 such periods. The reason for such a dismal showing is not difficult to discover, of course. At eight and a half years, this is the second longest Bull Run of all time.

Five-Month Stretch of Gains to Power Future Increases

But for March, when it lost 0.04%, the S&P 500 has now gained for five straight months in a row. In fact, the index has now gained for nine months out of the last 10. Taking total returns into account, which includes the impact of dividends, the index has increased every single month since October 2016.

Even as a large swathe of investors worry about pricey valuations, this long streak of gains should serve to ease their fears. Analysts at LPL Financial have stated that such five month stretches of gains are usually followed by year over year increases nearly 96% of the time. The average increase recorded over this period stands at 13.2%. The S&P 500 had gained for five successive months during the period stretching from March to July last year. Between July 2016 and 2017, the index gained 13.7%.

Considering a shorter time frame, the S&P 500 also increases over the month following such a winning streak, opines LPL Financial. Per the company’s data such gains have occurred 20 out of 25 times in the past. During the month immediately after a five-month winning stretch, the index has increased by an average level of 1.3%. Incidentally, the S&P 500 has already gained 1.1% till now this month.

Our Choices

With the S&P 500 lingering near the 2,500 mark, market naysayers are already raising the specter of a pullback. However, long term trends show that a five month winning streak is usually followed by strong year-over-year gains.

Further, such a stretch of increases usually leads to gains in the month immediately following such a period. Picking S&P 500 stocks which have notched up strong gains during this period makes for a profitable option. However, picking winning stocks may be difficult.

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Written By: Zacks Investment Research