You can find Newton’s law of motion in the US stock market around this time of year, and that’s a reason to buy stocks.
In a client note on Friday, Fundstrat’s Tom Lee wrote that when the S&P 500 is up year-to-date by mid-September, it tends to stay strong into the end of the year.
Lee is likely referencing the first of Newton’s three laws, which states that an object in motion will tend to keep going unless an unbalanced force disrupts it.
Lee examined how stocks performed from September 15 onwards every year since 1940. He found that when stocks were up 5% or more by mid-September, they rallied into the year-end 87% of the time.
But when stocks were down year-to-date by the middle of September, gains were non-existent.
“In other words, we believe this 3% pullback NEEDS TO BE BOUGHT aggressively,” Lee emphasised.
Past performance does not dictate the market’s future action. But this trend adds to Lee’s conviction that the S&P 500 will finish the year at 2,325, the highest among the most followed strategists on Wall Street.
At the market close on Thursday September 15, the index was up 6.7% year to date. A decline on Friday lowered its gains by about two percentage points; it opened at 2,142.80.