If you were as pessimistic as most market strategists were at the start of this year, many of whom have not changed their minds for 2024, you may want to reconsider, with the S&P 500 about to to reach a new absolute record. high in the days to come. Looking for Ned Davis Remarks that when the index hits a new high after breaking out of a bear market, it is extremely positive for long-term performance. In fact, the S&P 500 outperformed its long-term average over the ensuing one-, three-, six-, and 12-month periods, rising 13 times over the past 14 times over a one-year period by a median of 13.4. %. This is one of many reasons why I am maintaining my bullish outlook for 2023 into 2024. We are just 14 points away from that new all-time high on the last trading day of the year, which would come with a close of 4,797. If not today, I’m certainly thinking in the days that follow, which will bring more good news.
The S&P 500 is in the midst of a Santa Claus rally, a phenomenon in which the stock market posts a positive rate of return for the last five trading days of a year and the first two of the new one. We obviously won’t know until next week, but it seems more likely than not. When Santa Claus shows a gain over this period, the S&P 500 posts a positive return about 75% of the time over the entire year, with a median gain of 13.4%.
If we combine these two data sets, assuming both are achieved, then a gain of around 13% in 2024 would result in an S&P 500 around 5,400. Perhaps this is why Ed Yardeni , a well-known and highly successful market strategist on Wall Street, recently provided 12 reasons why the S&P 500 will hit 5,400 in 2024. His 12 reasons, which you can read at here, are all fundamentally founded. I completely agree with his assessment, and when I can find technical developments in the market that strongly support my fundamental outlook on both the market and the economy, the stars have aligned.
That’s what I felt shortly after last year’s Santa Claus rally, which strengthened my prospects for a soft landing of the economy and the birth of a new bull market in January 2023 My reasoning was based on fundamental factors very similar to those outlined by Ed Yardeni and I will present my own 2024 market outlook next week.
What I didn’t predict last year was how the S&P 500 would rise, as I looked for quality and value to lead. Instead, it was all about the Magnificent Seven until the last two months of the year, when scale improved significantly and the rest of the market finally joined the party. I plan to double last year’s forecast for quality and value to be ahead, meaning scale should be significantly improved in the coming year compared to 2023 The most magnificent may not suffer sharp declines, but their outsized gains for this year will not. likely to be repeated. This is especially true if the economy is slowing and the decline in long-term interest rates is largely complete. There will be less desire to hide in mega-cap growth stocks that seem impervious to the economic cycle.
It’s been easy to be swayed by bearish rhetoric throughout the past year, as Fed officials have talked tough about keeping rates high longer to keep inflation in check. I advised investors to focus on what Fed officials are likely to do rather than what they say. Constant warnings of “persistent inflation” have ignored the continuing disinflationary trend. There were several historically reliable indicators that predicted a recession, but I argued that they were unreliable due to the anomalies of the post-pandemic economy. There has also been alarmist talk about the disastrous Treasury auctions that never happened and the Fed’s withdrawal of liquidity from the markets, which has yet to have a significant impact on the markets.
I’ve been keeping up with the bearish narrative throughout 2023, as it has helped me verify my own bullish narrative. If we don’t consider contrarian views that might challenge our own assumptions, we run the risk of finding ourselves on the wrong side of the market for an extended period of time, from which it is very difficult to recover. The only thing that held me back was the steady improvement in the rates of change of high-frequency economic data. Consider that the Russell 2000 Index reached its low point which coincided with the peak of the inflation rate at 9.1% in June 2022. Certainly, the small-cap index continued to test this low several times over the next year before finally breaking out this month. . The fact is that the gradual improvement in economic data on a collective basis, which strengthened the prospects of a soft landing over the coming year, was a trend that the market was likely to follow as the The Fed’s rate hike cycle was coming to an end. . That’s why I raised my target for the S&P 500 in June and hit new all-time highs two weeks later.
Although I remain optimistic through 2024, I also remain tactical. This means increasing or decreasing exposure to asset classes, depending on technical developments in the market. It also means being prepared to shift from a bullish to a bearish narrative in the coming year if exchange rates begin to deteriorate. Averages for major markets are as trending upward today as they were at the start of August. This requires me to reduce risk, but only to the extent that I will be better positioned to capitalize on a downturn.
After calling for a pullback last August, I was very early in my expectations for a rebound, as I did not expect a complete correction in the S&P 500. Nonetheless, sticking to the underlying uptrend after A market correction in late October was the right decision, as rates continued to improve.
Once again, we are currently in an extreme overbought situation for the major market averages. This must be resolved by either another step back or a period of lateral movement. We usually see a combination of both. This leads me to believe that January could once again test the bullish narrative, but there is ample fuel in the form of money market funds to propel stocks higher. Therefore, I withdrew a few tokens as the end of the year approached in hopes of putting some money to work at lower prices.
This year has been exceptional for those who have remained optimistic. As optimistic as I am for 2024, I will continue to monitor the rates of change of incoming economic and market data, which will help dictate my outlook for the markets. When my metrics start to deteriorate, I will adjust accordingly and update my followers in these morning briefs that I post each day.
I hope everyone has a happy new year and a prosperous 2024!