Last year was a textbook seasonality and cycle year, with the market delivering above-average gains and closing at the annual highs right on cue at year-end. We expect this bull market to continue and our 2024 Forecast remains on track for our base-case scenario of annual gains in the 8%-15% range with perhaps more for S&P and NASDAQ, writes Jeff Hirsch, editor of The Stock Trader’s Almanac.
That said, January selling has become a regular occurrence in the last 20-25 years and is also typical of election-year Januarys. It makes sense if you think about it. Fourth quarters are notoriously strong as are pre-election years, so it would not be a stretch to expect some profit taking in January in general and election year January specifically – at least early in the month.
This caused the Santa Claus Rally and the First Five Days to fail. But stocks have bounced back into positive territory for the most part, pushing DJIA, S&P 500, and NASDAQ 100 to new all-time highs. NASDAQ Composite and Russell 2000 have not hit new ATHs. NASDAQ Composite was recently only 3.5% away, but R2K was still 23.6% below its November 2021 ATH.
Digging deeper into the 4-year cycle, we find that when the midterm year was down as it was in 2022, the following pre-election years are up huge just like 2023 – and this is also bullish for the election year. Market internals do leave a little something to be desired, which may be indicative of the potential for a continuation of Q1 election-year weakness after this late-January rebound runs its course.
Other than tech, especially mega-cap, and financials, some technical consolidation and distribution is afoot. Macroeconomic readings remain supportive with the latest GDP growth numbers better than expected and resilient. Inflation continues to mitigate and the job market is solid. The economy will likely decelerate this year, but the soft-landing scenario is still firmly in play.
Finally, our Election Year Seasonal Pattern Chart highlights the continuation of the 4-year cycle tracking the historical pattern. After dipping into negative territory at the outset of the year, S&P 500 has moved back to the Sitting President line in the chart.
As the election appears to be heading toward a rematch of 2020, we can look to the market for clues as to how the election may play out and reverse-handicap that to how the market is likely to perform for the rest of the year.
As the campaign trail rhetoric heats up, follow the market for guidance. Whoever gets elected, one pattern is clear and that is that there have only been Two Losses in the Last Seven Months of Election Years since 1950: 2000 (Tech bust, undecided election) and 2008 (GFC). We remain bullish on 2024.