If you were waiting on a dip to buy into a rally you've mostly missed -- or don't expect to end anytime soon -- the past few days may have been it.
That's the call from BigTrends.com's chief and President Price Headley anyway, who told CNBC's Street Signs host Martin Soong on Wednesday evening "I think this pullback is an opportunity to buy. We've been waiting to buy the dip. It's been a straight-up market basically since the beginning of October, ironically, and now we're in a really positive seasonal time of the year. Stocks make their beast gains in November, December and January -- the best three months of the year -- and I think you've got to be putting cash to work. "
Headley wasn't kidding about the three-month stretch being a great one for stocks. On average, the S&P 500 gains 4.2% between the end of October and the end of January. And, while this year's bullish romp has been ahead of the average pace, it's not been unusually strong for a winning year.
The reason for this incredible 13.6% rally since the end of last year isn't so much about what's happened, but what's not happened. Headley added, "You know, the biggest drivers right now are long term interest rates, which are staying low, even with the Fed raising short-term rates, so that's been a really positive surprise for equities, because everybody expected long-term rates would follow short rates higher. Hasn't happened." He went on to explain "We're not seeing inflation pressure, the CPI was up 0.1% for last month, it's just really an ideal time for stocks. "
The most recent round of inflation reports were unveiled on Wednesday, with the annualized inflation rate now standing at 2.04%, down from September's pace of 2.23%. That leaves the Federal Reserve room and reason to go ahead with December's planned increase in the Fed Funds rate, though it wouldn't have to if it didn't want to. Inflation appears to be stabilizing on its own, setting the stage for relatively tame long-term interest rates.
More than anything else working in favor of the market, however, is a surprisingly strong third quarter earnings season. "What I love is that we're getting earnings that are beating estimates. About three-quarters of the S&P 500's stocks topped their earnings estimates for this past quarter, and better yet, about 65% are beating their revenue numbers. That's about ten percentage points higher than usual on both of those fronts," Headley explained, adding "That tells you that you've got a lot of strong power going forward."
As for how far tempered long-term rates and strong earnings could keep a fire lit under the market, BigTrends' lead analyst noted "I don't just expect a 3% rally to the year-end. I expect we can get a 10% rally in the first half of next year from stocks, so I think we're going to keep powering ahead."
A 3% improvement on Wednesday's closing price of 2564.6 would put the index at a value of 2641, though bear in mind the index was up 0.7% at mid-day Thursday. A 10% improvement would carry the S&P 500 all the way up to 2821, which Headley believes is achievable sometime around the mid-point of 2018. The market would only need to keep moving at its present bullish pace to get there.
As for which sectors are most likely to lead the charge, Headley is looking for the recent leaders to remain out in front. That's technology. Headley explains "I think there are opportunities in technology. I was buying some Apple (AAPL) today. I think Apple hits it out of the park into the holiday season with the iPhone X. I was buying some Broadcom (BRCM), which has been beaten up on this whole takeover news with Qualcomm (QCOM). I think Broadcom's a leader in the chip sector, which has been one of the hottest sectors within tech. "
The technology sector is up nearly 39% for the past twelve months, but with little else that's capable of putting up the same kind of growth numbers they're putting up, traders have been leery of cashing out. Indeed, the market is still buying these names, even if they may look and feel technically overbought.
It's not just tech stocks BigTrends likes right now, however. Headley added "I'm also buying some financials. Visa (V) is my favorite financial, and I'm adding to my position. Credit card issuers are one of the strongest financial sector players. And, I like casino stocks. I like Wynn Resorts (WYNN) and I like Las Vegas Sands (LVS). I bought both of those today on the dip. So, I think these are leaders that you can expect to not just go back to where they were hear at their highs recently, but actually push to new highs into the year-end and into the first half of 2018."
Financials have been mediocre performers over the past year, but as was noted, the payment middlemen have done much better than the sector has as a whole. The same mostly applies to casino stocks, which are part of a consumer services sector that has been lackluster for the past year, but has accelerated of late.
For investors thinking beyond those three sectors though, Headley still has some advice. He concluded to Soong "You want to buy those leaders. You don't want to buy the dogs like General Electric (GE) that are stuck trying to figure out their way here. You want to stick with what's working here. "
To watch the entire interview, visit the CNBC website here.