Seasonal: Bullish. December is the second month of the Best 6 & 8 months. Also, the second month of the best consecutive three-month span, November to January. December is the third best month of the year for the DOW, S&P 500 and NASDAQ, and second best for Russell 2000. In presidential election years, December is #2 for the DOW and S&P 500, #5 NASDAQ, and the best Russell 2000 month of the year.
Fundamental: Improving? GDP has softened modestly but remains around 3%. The seasonally adjusted unemployment rate has retreated from its recent peak of 4.3% to 4.1%. Corporate earnings have been generally firm. Inflation is an issue stubbornly remaining above 2%, but it has cooled enough for the Fed to begin loosening monetary policy. Prospects for lower taxes and less regulation are increasing. Historically, any combination of lower taxes, less regulation, and/or falling interest rates has supported the market.
Technical: Consolidating. After breaking out to new all-time highs following Election Day, the DOW, S&P 500, and NASDAQ retreated somewhat. Support levels held during the pullback and now all three are trading higher. Small cap stocks have now joined the party with new highs not seen for over 3 years. This breakout is bullish and further strengthens the case for additional highs.
Monetary: 4.50 – 4.75%. The Fed is in a rate-cutting cycle and short-term interest rates are heading lower. At what pace and just how low are open for debate. As of November 21, the CMEGroup’s FedWatch Tool has the odds of a December rate cut at 55.9%. Not exactly conclusive, but it does suggest another cut before yearend remains likely. We expect the Fed will remain data dependent but will also likely attempt to avoid upsetting the market at the same time. Overall, monetary policy is a positive for the market.
Sentiment: Seasonal Cheer. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 60.0%. Correction advisors are at 21.7% while Bearish advisors number just 18.3% as of their November 20 release. Overall sentiment remains bullish, and historically it is not unusual for it to remain so through yearend supported by holiday cheer, yearend bonuses, and special one-time dividend payments.
The post-election rally was even more powerful than I anticipated. The expeditious election decision was clearly a relief for Wall Street, which added to the bullish seasonal forces and macro trends. The brief consolidation that followed mid-month was attributed to many things by market pundits, but it sure lined up well with the typical November chart, especially the election-year November seasonal pattern.
This seasonal mid-November weakness sets up the usual yearend run and gives me confidence that this year could exceed my 2024 best case scenario. I believe more new all-time highs may be seen before yearend. With the small cap stocks finally hitting new highs after 3 years this would suggest a further broadening of the bull market that has just entered its third year. At this juncture I would not be surprised if the market outperformed the average December and possibly tacking on another 4-5% or more, pushing the index over 6200 for the year or upwards of a 30% gain for 2024.
*Source: The Stock Trader’s Almanac