6 reasons we expect S&P 500 to finish 2024 strong, despite challenges for next 8 weeks Array ( [cookie] => bd6ff4-753795-cae496-a37a82-810f4f [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 42896 [user_id] => [reason] => Usage under limits [method] => ) 1 and can accesss 1

VIDEO: While next 8 weeks are challenging, we discuss 6 reasons stocks likely finish second half of 2024 strong.

Please click below to view our Macro Minute (duration 5:46)

This coming week is important, given the Presidential debate on Tuesday evening (9pm ET). And as we look ahead, we think it is important to keep in mind there are many reasons for stocks to finish strongly in the second half of 2024. That is, we do not believe the highs for 2024 have been made. But we are also realistic and expect the weeks leading to election day to be challenging.

• We do not think the highs for 2024 are in. But we also believe equity markets are somewhat rangebound for the next 8 weeks with S&P 500 between 5,300 to 5,700. And at the moment, we are at the lower end of that range.
• Here are the 6 reasons we expect S&P 500 to finish the second half (2H) strong:
  – “Soft landing” intact, not barreling towards recession
  – High-yield bonds rallied in Sept, positive divergence versus S&P 500
  – S&P 500 advance/decline reached new high in August, signaling new highs inbound for 2024
  – NVDA 0.27%  -25% drawdown is the 21st past 25 years (since 2000)
  – 2024 already a “strong market” year, 2H gain +10%
  – While VIX might peak near election day, S&P 500 bottoms in August 46% of time.  Meaning, we expect August lows to hold
• The August jobs report (Fri) strengthens the case for a soft landing. The unemployment rate actually fell in August. This is not something we expect to see if the labor market is weakening in a negative cyclical way.
• The divergence between stocks and high yield is notable. As shown below, equities and high yield have been in sync historically and at turning points, we see a divergence. But this is a positive divergence (for stocks):
  – since start of Sept, high yield has rallied >2%
  – since start of Sept, equities are down -4%
  – bonds should be down if the economy is barreling towards a recession
• Since 1928, during election years, here are the stats regarding volatility and market lows:
  – equity lows seen in August 46% of the time (21% Sep, 33% Oct)
  – volatility lows seen in Oct 63% of the time (25% Aug, 13% Sept)
• See what this implies? That the equity lows most likely have been made. So, S&P 500 5,100. But that volatility continues into election day. And with volatility, markets will feel choppy and be choppy for many stocks.
• And Mark Newton, Head of Technical Strategy, notes that the equity put-call ratio closed at the highest readings for 2024. This is a sign of panic with the levels ~1.0 and he believes this could set up for a low in equities this coming week.
• In any case, since 1950, when S&P 500 is up >10%:
  – n=23 instances
  – 2H gains +9.8% on average
  – win-ratio is 83%
• So, 2H likely to be very strong. There is a possibility the weakness for next 8 weeks was front-loaded, so we could see choppy gains from here. But the safer bet is that the bulk of the gains probably seen after election day.
• The Presidential debate will be important for both parties as this is an incredibly tight race based upon polls. But election probabilities seem to have tilted towards Trump (R):
  – Nate Silver, a widely followed forecaster now sees Trump election odds 63.8%
  – Betting markets (RealClearPolls avg) see Trump favored at 51% vs 48%
• There are other election forecasts favoring Harris. So it is still too close to call. But this does have sector implications.
• If Trump wins the White House:
  – Small-caps lead IWM 1.90%  IJF
  – Regional banks XLF 0.77%  KRE 2.41%
  – M&A picks up and favors industrials XLI 1.38%

BOTTOM LINE: Small-caps lead, Fed is dovish

Keep in mind the Fed is dovish and there is a focus on keeping labor markets strong. We could be seeing turbulence for the next 8 weeks, but this is also in the context of a very strong stock market in 2024. One where the S&P 500 has gained in 7 of the last 8 months.

And with inflation softening, the mandate focuses on strong jobs. That acts as an implicit “put” on the equity market, as falling asset prices would threaten to weaken labor markets.

Given the dovish Fed, this remains our 2024 playbook:

• Stick with what is working
• Small-caps IWM 1.90%  IJR 1.83%
• Financials and Industrials XLI 1.38%  XLF 0.77%
• AI/Tech NVDA 0.27%  CDNS -0.12%  ARM -6.17%  AMD 1.48%  AIQ 1.08%
• Ozempic-related  LLY -3.08%  NVO -3.86%
• Bitcoin & Proxies
  BTC MARA 3.90%  PYPL 2.43%  COIN 2.35%  MSTR 5.76%  SMLR 5.03%

But as we noted multiple times, we stick with the top 2 (small-caps and financials and industri

_____________________________

42 SMID Granny Shot Ideas: We performed our quarterly rebalance on 7/16. Full stock list here -> Click here

______________________________

PS: if you are enjoying our service and its evidence-based approach, please leave us a positive 5-star review on Google reviews —> Click here.

___________________________

Key incoming data September:

• 9/3 9:45 AM ET: Aug F S&P Global Manufacturing PMI Tame
• 9/3 10:00 AM ET: Aug ISM Manufacturing PMI Tame
• 9/4 8:30 AM ET: Jul Trade Balance Tame
• 9/4 10:00 AM ET: Jul JOLTS Job Openings Tame
• 9/4 10:00 AM ET: Jul F Durable Goods Orders Tame
• 9/4 2:00 PM ET:  Fed Releases Beige Book Tame
• 9/5 8:30 AM ET: 2Q F Non-Farm Productivity Tame
• 9/5 8:30 AM ET: 2Q F Unit Labor Costs Tame
• 9/5 9:45 AM ET: Aug F S&P Global Services PMI Tame
• 9/5 10:00 AM ET: Aug ISM Services PMI Tame
• 9/6 8:30 AM ET: Aug Non-Farm Payrolls Tame
• 9/9 9:00 AM ET: Aug F Manheim Used vehicle index
• 9/9 11:00 AM ET: Aug NY Fed 1yr Inf Exp
• 9/10 6:00 AM ET: Aug Small Business Optimism Survey
• 9/11 8:30 AM ET: Aug CPI
• 9/12 8:30 AM ET: Aug PPI
• 9/13 10:00 AM ET: Sep P U. Mich. Sentiment and Inflation Expectation
• 9/16 8:30 AM ET: Sep Empire Manufacturing Survey
• 9/17 8:30 AM ET: Aug Retail Sales Data
• 9/17 9:00 AM ET: Sep M Manheim Used vehicle index
• 9/17 10:00 AM ET: Sep NAHB Housing Market Index
• 9/18 2:00 PM ET: Sep FOMC Decision
• 9/18 4:00 PM ET: Jul Net TIC Flows
• 9/19 8:30 AM ET: Sep Philly Fed Business Outlook
• 9/19 10:00 AM ET: Aug Existing Home Sales
• 9/23 8:30 AM ET: Aug Chicago Fed Nat Activity Index
• 9/23 9:45 AM ET: Sep P S&P Global Manufacturing PMI
• 9/23 9:45 AM ET: Sep P S&P Global Services PMI
• 9/24 9:00 AM ET: Jul S&P CoreLogic CS home price
• 9/24 10:00 AM ET: Sep Conference Board Consumer Confidence
• 9/25 10:00 AM ET: Aug New Home Sales
• 9/26 8:30 AM ET: 2Q T 2024 GDP
• 9/26 10:00 AM ET: Aug P Durable Goods Orders
• 9/27 8:30 AM ET: Aug PCE Deflator
• 9/27 10:00 AM ET: Sep F U. Mich. Sentiment and Inflation Expectation
• 9/30 10:30 AM ET: Sep Dallas Fed Manuf. Activity Survey

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: