Ned Davis Research, in its latest analysis, presents an optimistic outlook for the global stock market, drawing comparisons to the bullish trends of 2020 rather than the bearish periods experienced in the early 2000s or 2021. This positive sentiment is grounded in several key indicators that suggest a robust market landscape for the coming year.
Tim Hayes, the Chief Global Investment Strategist at the firm, notes a significant improvement in market conditions. One of the most encouraging signs is the broad participation in market upswings and a decrease in the dominance of mega-cap stocks, a shift that mirrors the dynamics of the late 2020 bull market. Hayes highlights that a remarkable 92% of the 47 markets within the All Country Wide Index (ACWI) are performing above their 50-day moving averages, a level not seen since early 2021. Furthermore, an impressive 89% of these markets are on an upward trajectory, the highest since March of the same year.
The concentration of mega-cap stocks within the ACWI, which reached new heights in September, has since shown a decline. This reduction in concentration coincides with a rise in the NDR’s Rally Watch indicator above 50%, a pattern that was also observed in the bullish phase of 2020. This contrasts sharply with the concentration peaks of 2000 and 2021, where such a rise in the Rally Watch indicator was not evident.
Historical data from NDR further bolsters this optimistic view. When all three of their composite indicators align positively, as they have since December, the ACWI has historically seen average annual gains of 20% since 1985. In the 28 instances where each indicator remained positive for at least 15 days, the ACWI experienced an average rise of 4%, with gains materializing in 79% of these cases. Notably, the last two instances of this positive alignment occurred in the latter half of 2020.
Hayes confidently asserts that the current market conditions significantly diminish the risk of a mega-cap meltdown, a scenario that could potentially trigger a bear market akin to those seen in 2000 or 2022. The current trend of reduced mega-cap dominance coupled with increased market participation echoes the late 2020 scenario. This parallel suggests promising prospects for the ACWI, including the potential for record highs and sustained strength across its component markets. This analysis provides a compelling narrative for wealth advisors and RIAs, offering a data-driven perspective on the potential trajectory of global stock markets in the near future.
