Seasonal: Bullish. November is the first month of the Best 6 & 8 Months, and the first month of the best consecutive three-month span, November to January. November is also the best S&P 500 month of the year since 1950, second best for the DOW and NASDAQ (since 1971). In election years, November maintains its top month status.
Fundamental: Landing Softly. Yesterday’s Q3 (advance estimate) of GDP was 2.8%. This is a modest slowing from Q2’s 3% but still a fair number. Employment data has also softened slightly yet remains adequate with continued monthly job gains. Inflation remains a thorn as its pace of retreat has slowed substantially while remaining above 2%.
Technical: Consolidating. The DOW, S&P 500, and finally NASDAQ broke out to new all-time highs in October but are pulling back ahead of Election Day. The DOW was first to start pulling back and closed below its 50-day moving average yesterday. The S&P 500 and NASDAQ are just above their respective 50-day moving averages. Levels to watch are around DOW 41500, S&P 500 around 5650 and NASDAQ 17800.
Monetary: 4.75 – 5.00%. If you get selective with inflation data, another 0.25% interest rate reduction from the Fed next week seems reasonable. However, it may not be that simple as inflation data is still above the Fed’s stated 2% target and the pace of inflation’s retreat appears to be stalling out. Personal Consumption Expenditures (PCE) excluding food and energy or “core” PCE, has been lingering around 2.6-2.7% year-over-year since May.
Sentiment: Bulls Moderate. According to Investor’s Intelligence Advisors Sentiment survey, Bullish advisors stand at 57.6%. Correction advisors were at 20.4% while Bearish advisors numbered 22.0% as of their October 30 release. Bullish advisors tended to drift higher throughout most of October, peaking at 58.3% before easing to the current reading. Overall sentiment remains bullish, and historically it is not unusual for it to remain so through yearend.
With the best months of the year commencing today, steady and resilient economic readings, broadening market participation, supportive technicals, and NASDAQ hitting a new all-time recently I believe a fourth quarter rally will ensue after the election is decided leading to further highs. The market will likely remain in a holding pattern until we have a clear winner. After that, the history of market gains from Election Day to Yearend is encouraging. Overall, from Election Day to Yearend the DOW is up 72.2% of the time, the S&P 500 is up 66.7% of the time, and the NASDAQ is up 76.9% of the time. I do have concerns about the arguably unsustainable deficit spending and the ballooning national debt. Gold and other hard assets are likely rising because of it along with heightened geopolitical risk. These fiscal issues will either be addressed with some tough measures and/or by a crisis of some sort. But I do not expect that anytime over the next 12-18 months or so. Midterm election year 2026 is the next likely point when I can see these issues coming home to roost. For now, the 2024 election results will likely have very little long-term impact on the US or Global markets and economy. I don’t think we’ll have another big double-digit year like 2023 and 2024. I’m thinking of a more normal 8-12% return in 2025 with pullbacks in Q1 & Q3.
*Source: The Stock Trader’s Almanac