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Money Rotates as Rally Broadens Out: Where to Look for Upside Potential

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The stock market action has been fast and furious in 2024, with the bull market gaining momentum over the past several months. Better-than-expected corporate earnings, decelerating inflation, and positive seasonality are all contributing to this recent surge.

The S&P 500 managed to end yesterday’s session at a new all-time closing high. The index has hit a record 20 times this year as the secular bullish trend resumes. The S&P is on track for its 5th straight monthly advance – a signal that stocks may be on track for even further gains.

When we look at similar stretches throughout history in which the S&P 500 advanced 5 months in a row (from November through March), forward returns appear quite enticing. Spanning 11 instances dating back to 1950, the index has never been lower through the remainder of the year:

Zacks Investment Research
Image Source: Zacks Investment Research

Adding to the optimistic case is the fact that volatility has been trending downward throughout much of the year – a hallmark of bull markets. The VIX Index, commonly referred to as the “fear gauge”, has spent much of 2023 at relatively low levels.

The descent in the widely-followed volatility measure speaks to probabilities about narrower price ranges in the short-term, as opposed to wider ranges that are generally associated with higher market volatility.

We continue to experience sector rotation as the market rally broadens out. The Zacks Finance sector has climbed the rankings and is now rated in the top 50% of all 16 Zacks Ranked Sectors. Historical research studies suggest that approximately half of a stock’s price appreciation is due to its sector and industry grouping combination. In fact, the top 50% of Zacks Ranked Sectors outperforms the bottom 50% by a factor of more than 2 to 1.

Stocks within the Zacks Finance sector are also relatively undervalued:

Zacks Investment Research
Image Source: Zacks Investment Research

Insurance Stocks Trending Up

Drilling down further, one of the industries within this sector that is breaking out to new heights is insurance. The SPDR S&P Insurance ETF (KIE - Free Report) has displayed relatively little volatility over the past 6 months and has begun to outperform. In fact, the KIE ETF recently made a new all-time high in March:

Image Source: StockCharts

The SPDR S&P Insurance ETF provides exposure to companies that offer life, property and casualty, and multi-line insurance. One particular holding within the KIE ETF accounts for over 2% of the total fund constituency.

Allstate (ALL - Free Report) is the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the United States. The company provides insurance products to approximately 16 million households.  

The insurance giant has built an impressive track record in terms of earnings surprises, surpassing estimates in three of the last four quarters. Back in February, the company delivered fourth-quarter earnings of $5.82/share, a 50.4% surprise over the $3.87/share consensus estimate.

A Zacks Rank #2 (Buy) stock, Allstate has delivered a trailing four-quarter average earnings beat of 43.9%. Consistently beating earnings estimates is a recipe for success.

ALL shares have advanced more than 24% this year, widely outperforming the major indexes:

Image Source: StockCharts

Analysts are bullish in terms of fiscal 2024 earnings projections and have raised estimates by 6.51% in the past 60 days. The full-year Zacks Consensus EPS Estimate now stands at $13.25/share, reflecting a phenomenal growth rate of 1,294.7% relative to last year.

Zacks Investment Research
Image Source: Zacks Investment Research

Final Thoughts 

The stock market is forward-looking and is telling us to keep an open mind regarding bullish outcomes in the future. Renewed strength from industries such as insurance bodes well for the sustainability of this new bull market.

Make sure to keep an eye on this space including leading stocks like ALL as it looks like there’s more upside ahead.

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