Top 5 Reasons the Stock Market Is Poised to Reach New Record Highs

The stock market has surged in recent months despite facing numerous challenges such as tariffs, trade disputes, rising interest rates, and valuations that remain elevated by historical standards. Jack Ablin, co-founder and Chief Investment Officer (CIO) of Cresset Wealth Advisors, predicts the market will break through to new record highs, supported by five key indicators, according to his interview with CNBC. One crucial factor is momentum, which he explains: "A market in motion tends to stay in motion unless disrupted. For example, looking at the 200-day moving average, the market hasn’t even dipped below it despite a few pullbacks this year. This momentum suggests maintaining a risk-on stance for now."

Stocks Positioned to Reach New Peaks

Source: Yahoo Finance; record highs based on intraday trading data.

Beyond momentum, Ablin highlights positive trends in valuation, economic performance, liquidity, and investor sentiment. Jason Hunter, a technical analyst at JPMorgan, anticipates the S&P 500 will accelerate to around 2,950 by late summer or early fall, based on his chart analysis, as reported by CNBC. Meanwhile, Michael Hartnett, Chief Investment Strategist at Bank of America Merrill Lynch, notes that the current bull market is on track to become the longest in history. (See also: Stock Market Approaches Longest Bull Run Ever.)

Valuation

Ablin argues that when considering a shorter-term perspective using forward price-to-earnings (P/E) ratios, stocks appear relatively inexpensive. Despite a year-over-year earnings growth of approximately 26% for the S&P 500, the index has only increased about 6% this year. While acknowledging that earnings growth may slow, he believes investor skepticism has created a slight discount in stock prices.

The Economy

With U.S. GDP expanding at an annualized rate exceeding 4% and most major economic indicators showing positive momentum, Ablin identifies these factors as key drivers for future stock gains. He notes, "We continue to outperform economists' forecasts, and the economic environment remains favorable for risk-taking."

Liquidity

Regarding available capital for borrowing, spending, or investing, Ablin states, "We have effectively returned to a period of easy money." Liquidity plays a vital role in supporting asset prices, and he points out that declining liquidity often serves as an early warning sign, though typically with a long lead time. For example, liquidity decreased steadily over four quarters leading up to the 2008 financial crisis.

Investor Psychology

Investor sentiment, often used as a contrarian indicator, currently shows skepticism rather than extreme bullishness. Ablin counters concerns about excessive optimism by explaining, "Investors are cautious and not at an extreme. They fall roughly in the second quartile toward the bearish side of the bullish-bearish spectrum."

The Contrarian Perspective

While Ablin’s indicators paint an optimistic outlook, some experts disagree. Veteran market analyst Mark Hulbert recently identified eight historically reliable indicators suggesting the market is overvalued and investor confidence is too high. Among these is a valuation metric favored by Warren Buffett. Even if stocks reach new highs, if fundamental issues such as trade tensions, economic growth concerns, and high valuations persist, the risk of a sharp market correction remains.

Meanwhile, a growing number of analysts and market commentators have issued bearish warnings. Notably, John Hussman predicts a severe market crash with declines up to 60% from current highs. Michael Wilson, Chief U.S. Equity Strategist at Morgan Stanley, warns of a "false sense of security" and anticipates a significant selloff, potentially the worst since early this year. (For more insights, see: 'Buffett Indicator' Signals Trouble for Stock Investors.)

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