As the stock market sets a series of new highs in 2024, there are positive signs that this upward trend may continue.

Bank of America's technical analyst Stephen Suttmeier said in a report on Tuesday that the ongoing bull market is healthy, and investors are generally turning to stocks of smaller companies.

Suttmeier mentioned, "The expansion of the upward trend and rotation are vital to the bull market, and the fact that the S&P 500 index touched high last week is a strong indication." Suttmeier believes that strong technical factors plus good seasonal factors at the end of an election year may help push the stock market to new highs later this year.

The following are four bullish indicators that Suttmeier believes support the continued rise of the stock market.

Narrowing of junk bond spreads.

The yield spread between risky corporate debt (junk bonds) and super-safe government bonds has not shown signs of concern for the overall stock market.

When investors are worried about the economy and the overall market, they usually demand higher risk premiums, causing credit spreads to soar.

Suttmeier said: "This credit spread remaining narrow is a positive signal."

Narrowing of corporate bond spreads.

Similar to the signal sent by junk bonds, the chart below measures the difference between the yield of high-quality corporate bonds and 10-year US Treasury bonds.

Suttmeier said, "The BAA spread below 2.0 is still benign." The spread reached 1.38 in April, the lowest level since 1995. Currently, the spread is around 1.58, far below the 2.0 level representing the "risk appetite" environment in the stock market as mentioned by Suttmeier.

6 trillion dollars in cash is a bullish signal.

According to Bank of America, the record-breaking $6 trillion in money market funds held by investors is a contrarian bullish signal.

This money could be a driver of sustained stock market growth, especially if the Federal Reserve lowers interest rates, making the current 5% cash yield less attractive.

This could lead investors to rethink their cash positions and ultimately consider buying stocks.

The Federal Reserve Financial Conditions Index confirms the stock market's rise.

According to Suttmeier, the stock market has repeatedly set new highs in the past few weeks, and the cyclic bull market high of the Federal Reserve's National Financial Conditions Index in Chicago also confirms this. This is a healthy signal and should be able to support sustained growth in the stock market.

The Financial Conditions Index showed a significant negative divergence at the end of 2021, when the S&P 500 index rose while the Financial Conditions Index fell.

With the Financial Conditions Index recently reaching its highest level since early 2022, there is still room for it to surpass the 2021 peak, indicating that the stock market still has room to rise.

Edited by Jeffrey