U.S. Stock Futures Rebound After Selloff: Can the Momentum Continue?

U.S. stock futures have rebounded after a recent selloff, with the market showing signs of renewed optimism. The rebound is driven by positive economic data and renewed confidence in earnings and a potential soft landing for the economy. However, investors should remain vigilant and monitor the market closely, as a range of factors could throw stocks off their trajectory.

The recent rebound in U.S. stock futures is primarily driven by two main factors. First, fresh signs of a cooling economy and calming consumer prices have helped alleviate inflation worries, which had been a significant concern for investors. This positive economic data has contributed to the rebound in stock futures (Lerner, 2024). Second, investors have become more optimistic about the prospects for strong earnings and a soft landing for the economy. This renewed confidence has fueled the rally in stock futures (Lerner, 2024).

Historical trends and patterns in the U.S. stock market suggest that following a recovery from a pullback, stocks tend to build momentum and continue to rally even after making up lost ground. Keith Lerner, co-chief investment officer at Truist Advisory Services, studied data going back to 2009 and found that past rebounds in the S&P 500 from 5% pullbacks were followed by a median gain of 17.4%. As of Friday, the S&P 500 was up nearly 7% from its April lows, indicating that there could be further gains ahead if the current bounce conforms to that pattern.

Additionally, broader historical comparisons also suggest more upside ahead for the current bull market. Lerner's study showed a 108% median climb for bull markets since the 1950s, compared to the nearly 50% the S&P 500 has gained since October 2022. The median length for a bull market in that period has been just over 4.5 years compared to slightly more than 1.5 years since the start of the current one. This suggests that the current bull market may have further room to run.

Investors should also consider letting their winners ride, as S&P 500 sectors that led as stocks rebounded from a pullback outperformed the broader market 68% of the time as equities continued running higher. This means that investors should consider maintaining their positions in sectors that have performed well during the recovery, as they may continue to outperform the broader market.

Furthermore, all 11 S&P 500 sectors are currently above their 200-day moving averages, which is a positive sign for the market's momentum. When at least nine of the sectors are above those trendlines, the average annual return for the S&P 500 from that point has been 13.5%. This suggests that the market's momentum could continue to drive stocks higher in the near term.

However, it is important to note that a range of factors could throw stocks off their trajectory, and investors should remain vigilant and monitor the market closely. These factors include upcoming economic data, Fed policy, valuations, and geopolitical risks. Positive data and a dovish Fed stance could support further gains in stocks, while negative data or a hawkish Fed could lead to a pullback.

In conclusion, the recent rebound in U.S. stock futures is driven by positive economic data and renewed optimism about earnings and a soft landing. While historical trends and market momentum suggest that the trend could continue, the sustainability of the rally depends on upcoming economic data, Fed policy, valuations, and geopolitical risks. Investors should remain vigilant and monitor the market closely to capitalize on any further gains that may materialize.