4 reasons we see December rally to S&P 500 6,300. But with risk of "zone of hesitation" in next 2 weeks. Buy the dips

VIDEO: We see 4 reasons stock rally in December with S&P 500 reaching 6,300.  But we discuss the possible reasons for a “zone of hestiation” in the next few weeks

Please click below to view our Macro Minute (duration: 3:22).

This week is the start of the final weeks of 2024 and we have see 4 reasons equities still rally into year-end towards S&P 500 6,300. There is a caveat that in the near-term, we could be entering a “zone of hesitation” but this is where we would urge investors to buy the dip.

• Here are the 4 reasons we expect a December rally to S&P 500 6,300:
  1. Seasonally Dec strong – 83% probability
  2. Interest rates (10Y) declined pre-election levels
  3. Sentiment cautious (AAII) = contrarian positive
  4. Fed “put” + Trump “put” = “buy any dip”
  caveat: Near-term uncertainty = “buy any dip”
• Since 1950, here are probabilities of an “up” December:
  – since 1950 (n=74)
  – when S&P 500 up >10% first half (n=23)
  – December higher 83% of time, median +2.9%
  – if ALSO election year, 100% of time, median +3.4%
  – implies S&P 500 6,250, close enough to 6,300
• As for sentiment, I have been surprised to see AAII net bulls (American Association of Individual Investors) turn outright bearish:
  – 3 weeks ago +22 (very bullish)
  – 2 weeks ago +8 (declining)
  – last week -2 (outright bearish)
• This is a contrarian bullish signal. To us, I am viewing this as positive that stocks are up the last two weeks and yet sentiment has turned more bearish.
• There is a few near-term headwinds, which we believe create a fundamental “zone of hesitation”:
  – 12/6 Nov jobs report
  – 12/11 Nov CPI
  – 12/18 Dec FOMC rate decision
• Around each of these events, we expect markets to be somewhat cautious, and this will be evidenced by the VIX, which is likely to surge in front of these events.
• There is a lot of macro this week, actually “a ton”:
  – 12/2 Mon 9:45 AM ET: Nov F S&P Global Manufacturing PMI    49.0e
  – 12/2 Mon 10:00 AM ET: Nov ISM Manufacturing PMI    47.6e
  – 12/3 Tue 10:00 AM ET: Oct JOLTS Job Openings    7470ke
  – 12/4 Wed 9:45 AM ET: Nov F S&P Global Services PMI    57.0e
  – 12/4 Wed 10:00 AM ET: Nov ISM Services PMI    55.5e
  – 12/4 Wed 10:00 AM ET: Oct F Durable Goods Orders   
  – 12/4 Wed 1:45 PM ET: Powell Speaks in Moderated Discussion
  – 12/4 Wed 2:00 PM ET:  Fed Releases Beige Book
  – 12/5 Thu 8:30 AM ET: Oct Trade Balance    -75be
  – 12/6 Fri 8:30 AM ET: Nov Non-farm Payrolls    200ke
  – 12/6 Fri 9:00 AM ET: Nov F Manheim Used Vehicle Index
  – 12/6 Fri 10:00 AM ET: Dec P U. Mich. 1yr Inf Exp
• And a lot of “Fed Speak” including Powell (12/4):
  – 12/2 Mon 3:15 PM ET: Waller Gives Keynote at Fed Framework Conference 
  – 12/2 Mon 4:30 PM ET: Williams Gives Keynote Remarks  
  – 12/3 Tue 12:35 PM ET: Kugler Gives Speech on Labor Market, Policy 
  – 12/3 Tue 3:45 PM ET: Goolsbee Gives Closing Remarks  
  – 12/4 Wed 8:45 AM ET: Musalem Speaks on US Economy, Policy   
  – 12/4 Wed 1:45 PM ET: Powell Speaks in Moderated Discussion  
  – 12/6 Fri 9:15 AM ET: Bowman Speaks to Missouri Bankers Association 
  – 12/6 Fri 10:30 AM ET: Goolsbee Participates in Fireside Chat  
  – 12/6 Fri 12:00 PM ET: Hammack Speaks on the US Economy 
  – 12/6 Fri 1:00 PM ET: Daly Speaks in Moderated Conversation 

* Voters in Bold

Bottom line: Stay on target into year-end

We see stocks rallying into year-end, with the possibility of a “zone of hesitation” near-term. But we would urge investors to buy this dip. That said, we see more upside for other groups. This holds whether looking at 2016, or whether thinking of a dovish Fed. The drivers are:

• de-regulation
• drop in cost of capital for businesses
• general “animal spirits” given Republican White House and Senate

This favors the following groups:

• Small-caps: IWM 2.20%  IJR 2.58%
• Cyclicals: XLF 1.29%  KRE 2.85%  XLI 1.28%
• Bitcoin: BTC MSTR -3.18%  SMLR -0.50%

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Key incoming data December:

• 12/2 9:45 AM ET: Nov F S&P Global Manufacturing PMI
• 12/2 10:00 AM ET: Nov ISM Manufacturing PMI
• 12/3 10:00 AM ET: Oct JOLTS Job Openings
• 12/4 9:45 AM ET: Nov F S&P Global Services PMI
• 12/4 10:00 AM ET: Nov ISM Services PMI
• 12/4 10:00 AM ET: Oct F Durable Goods Orders
• 12/4 2:00 PM ET:  Fed Releases Beige Book
• 12/5 8:30 AM ET: Oct Trade Balance
• 12/6 8:30 AM ET: Nov Non-Farm Payrolls
• 12/6 9:00 AM ET: Nov F Manheim Used vehicle index
• 12/6 10:00 AM ET: Dec P U. Mich. Sentiment and Inflation Expectation
• 12/9 11:00 AM ET: Nov NY Fed 1yr Inf Exp
• 12/10 6:00 AM ET: Nov Small Business Optimism Survey
• 12/10 8:30 AM ET: 3Q F Non-Farm Productivity
• 12/10 8:30 AM ET: 3Q F Unit Labor Costs
• 12/11 8:30 AM ET: Nov CPI
• 12/12 8:30 AM ET: Nov PPI
• 12/16 8:30 AM ET: Dec Empire Manufacturing Survey
• 12/17 8:30 AM ET: Nov Retail Sales Data
• 12/17 9:00 AM ET: Dec P Manheim Used vehicle index
• 12/17 10:00 AM ET: Dec NAHB Housing Market Index
• 12/18 2:00 PM ET: Dec FOMC Decision
• 12/19 8:30 AM ET: 3Q T 2024 GDP
• 12/19 8:30 AM ET: Dec Philly Fed Business Outlook
• 12/19 10:00 AM ET: Nov Existing Home Sales
• 12/19 4:00 PM ET: Oct Net TIC Flows
• 12/20 8:30 AM ET: Nov PCE Deflator
• 12/20 10:00 AM ET: Dec F U. Mich. Sentiment and Inflation Expectation
• 12/23 8:30 AM ET: Nov Chicago Fed Nat Activity Index
• 12/23 10:00 AM ET: Dec Conference Board Consumer Confidence
• 12/24 10:00 AM ET: Nov New Home Sales
• 12/24 10:00 AM ET: Nov P Durable Goods Orders
• 12/30 10:30 AM ET: Dec Dallas Fed Manuf. Activity Survey
• 12/31 9:00 AM ET: Oct S&P CoreLogic CS home price

Key incoming data November:

• 11/1 8:30 AM ET: Oct Non-Farm Payrolls Tame
• 11/1 9:45 AM ET: Oct F S&P Global Manufacturing PMI Tame
• 11/1 10:00 AM ET: Oct ISM Manufacturing PMI Tame
• 11/4 10:00 AM ET: Sep F Durable Goods Orders Tame
• 11/5: US Presidential Election 2024
• 11/5 8:30 AM ET: Sep Trade Balance Tame
• 11/5 9:45 AM ET: Oct F S&P Global Services PMI Tame
• 11/5 10:00 AM ET: Oct ISM Services PMI Mixed
• 11/7 8:30 AM ET: 3Q P Non-Farm Productivity Tame
• 11/7 8:30 AM ET: 3Q P Unit Labor Costs Mixed
• 11/7 9:00 AM ET: Sep F Manheim Used vehicle index Tame
• 11/7 2:00 PM ET: Nov FOMC Decision Dovish
• 11/8 10:00 AM ET: Nov P U. Mich. Sentiment and Inflation Expectation Tame
• 11/12 6:00 AM ET: Oct Small Business Optimism Survey Tame
• 11/12 11:00 AM ET: Oct NY Fed 1yr Inf Exp Tame
• 11/13 8:30 AM ET: Oct CPI Tame
• 11/14 8:30 AM ET: Oct PPI Tame
• 11/15 8:30 AM ET: Oct Retail Sales Data Tame
• 11/15 8:30 AM ET: Nov Empire Manufacturing Survey Hot
• 11/18 10:00 AM ET: Nov NAHB Housing Market Index Tame
• 11/18 4:00 PM ET: Sep Net TIC Flows Hot
• 11/19 9:00 AM ET: Oct M Manheim Used vehicle index Mixed
• 11/21 8:30 AM ET: Nov Philly Fed Business Outlook Tame
• 11/21 10:00 AM ET: Oct Existing Home Sales Tame
• 11/22 9:45 AM ET: Nov P S&P Global Manufacturing PMI Tame
• 11/22 9:45 AM ET: Nov P S&P Global Services PMI Tame
• 11/22 10:00 AM ET: Nov F U. Mich. Sentiment and Inflation Expectation Tame
• 11/25 8:30 AM ET: Oct Chicago Fed Nat Activity Index Tame
• 11/25 10:30 AM ET: Nov Dallas Fed Manuf. Activity Survey Tame
• 11/26 9:00 AM ET: Sep S&P CoreLogic CS home price Tame
• 11/26 10:00 AM ET: Nov Conference Board Consumer Confidence Tame
• 11/26 10:00 AM ET: Oct New Home Sales Tame
• 11/26 2:00 PM ET: Nov FOMC Meeting Minutes Dovish
• 11/27 8:30 AM ET: Oct PCE Deflator Tame
• 11/27 8:30 AM ET: 3Q S 2024 GDP Tame
• 11/27 10:00 AM ET: Oct P Durable Goods Orders Tame

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: