History says stocks could rise 22% in the next year as the market rally builds momentum — and investors can profit by buying these 11 stocks, according to BMO Capital Markets

• A handful of large-cap technology companies have carried the market in 2023.
• But leading strategists at BMO don’t see that narrow breadth as a serious concern.
• Here are 11 stocks that the firm is bullish on heading into June.

Investors shouldn’t be too unsettled by the bad breadth in the stock market this year, according to top strategists at BMO Capital Markets.

The S&P 500’s 10% year-to-date gain has been disproportionately driven by five technology stocks that happen to be the index’s biggest weightings: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Nvidia (NVDA), and Alphabet (GOOGL). It’s no coincidence that every company in that mega-cap quintet has some exposure to the red-hot artificial intelligence space.

Those tech giants have beaten the broader market each of the first five months of 2023 and have crushed the S&P 500 overall. However, that astounding outperformance has made many market watchers worried that the S&P 500’s gains could suddenly unwind if those firms can’t maintain their momentum, wrote Brian Belski, BMO’s chief investment strategist, in a May 30 note.

Though those concerns seem to be well-founded at first blush, BMO studied past data and found that US stocks can hold up — or even rise — when large-cap leaders fall back toward the pack.

“We found that narrow market breadth in general does not represent a bad omen for S&P 500 performance despite the contrary narrative being pushed by many investors,” Belski wrote.

In fact, the S&P 500 has climbed during 11 of the last 12 times in which breadth narrowed, Belski noted, adding that stocks were also more likely to rise when breadth broadened out.

Not only is the risk of weak market breadth overblown in Belski’s view, but the strategy chief also pointed out that mega-cap dominance has historically served as jet fuel for the S&P 500.

When the index’s five biggest stocks lead for five straight months or longer, that strength has historically tricked down. Such scenarios have put the S&P 500 in positive territory 100% of the time in the following three and six months, with returns of at least 6%, Belski noted.

And in the year following a five-month hot streak for the S&P 500’s five largest companies, the index has surged by an average of over 22% and has fetched returns of more than 20% in three of the last four instances, according to BMO Capital Markets.

11 stocks to buy during a rebound

Although Belski’s market commentary didn’t come with any specific recommendations for playing a possible rally for the broader market, the strategy chief and his team did recently refresh their model investment strategy portfolios and fundamental stock lists.

Below are 11 stocks that are the newest additions to BMO’s model portfolios or stock pick lists, along with the ticker, market capitalization, price-to-earnings (P/E) ratio, and group for each.