Technically, the near-term pattern remains stretched to the upside but Equities have entered the so-called “Santa Claus Rally” Period with little to no correction, but merely a slowdown near all-time highs for SPX, and QQQ. To its credit, Small-cap Russell 2000 has successfully pushed back above 200 to close the week, and further near-term strength in Small-caps looks likely. If SPX and QQQ can officially close above 4818 and 408.71 respectively, then a probable push up into late January could be likely before any meaningful selloff. At present, Treasuries have stalled similar to Equities lately with TNX sitting 1 basis point from last week’s lows while SPX is still under 4818. Ishares Russell 2000 ETF (IWM) is shown below.
IWM
Best Gifts for Investors in 2023
Despite this having proven to be a difficult year for markets to rally symmetrically, equity markets still have turned in a very good year for investors with just four more trading days left in the year.
The Up’s and Down’s of market prices have certainly coincided with very unsettling news on the geopolitical front not to mention a puzzling picture on the strength of the US Economy and concerns about an uptick in crime, and high food and gas prices.
However, I suspect that 2024 could prove to be an easier year for investors, as market gauges are in much better shape than at this time last year, with regards to breadth and momentum, not to mention technical price structure.
Looking back, many of these could be considered to be some of the best gifts to investors as the year comes to a close.
- No Recession
- Sharp decrease in interest rates and mortgage rates since October
- Inflation, as per headline CPI, has dropped 600 bps. from June 2022 to Nov. 2023
- FOMC pause in rate hikes and several cuts built into the futures curve for 2024
- AI Technology boom
Here’s the current SPX weekly chart, with a green arrow showing the present time, 12/22/23 while the red arrow shows December 2022, a year ago.
S&P 500
Many Technical positives are now present that were absent at this time last year
- Markets are approaching all-time highs, (SPX, QQQ) and some gauges like DJIA have already pushed back to new all-time high territory.
- Momentum is now positive on daily, weekly and monthly timeframes, per MACD, vs this time last year. In late December, monthly MACD was sharply negative
- Markets have been trending higher since October 2022 based on the last major swing low of the past couple years. So, trends are bullish, whereas this time last year, the trend from November 2021 (NDX) and from January 2022 were bearish and markets lay within downtrends from all-time highs
- Market breadth is sound at present. SPX has 81% of stocks within 20% of their 12-month highs, vs 46% back in mid-December 2022.
- Percentage of Russell 3000 names above their 200-day moving averages is now 66.5%, vs. 36% at this time last year.
- Technology and Industrials lie within striking distance of multi-year highs vs. SPX while more than half of the sectors have broken downtrends from 2022 peaks.
- Four sectors have beaten the Equal-weighted S&P 500 in relative terms in 2023 with four trading days remaining: Technology, Discretionary, Industrials and Communication Services
- None of the Equal-weighted 11 sectors that make up the S&P from Invesco have a Relative Strength Index (RSI) reading above 70.
- Seven of the 11 Equal-weighted Sector ETF’s from Invesco have returned greater than 7% in Three-month returns through 12/22/23. Only Healthcare, Utilities, Staples and Energy have lagged.
Overall, this is a “far cry” from where markets were last year, technically speaking. While the path higher certainly shouldn’t prove symmetrically bullish all year, I do suspect this will prove to be an easier year for many investors, vs. this past year. (As many know, Technology dominated the indices and performance for nearly 10 months before a more broad-based rally kicked in.) I anticipate that 2024 is getting underway with a lot of momentum and should prove to be a good year for investors.
Breadth statistics have not yet begun to turn down meaningfully in a way that merits attention
One gauge I often employ for breadth is to study the 10-period Exponential Moving Average (EMA) of Advancing issues divided by Advancing + Declining issues
As can be seen below, during times of market weakness, this gauge tends to drop ahead of time, and begins to turn lower, diverging from its peaks. Similarly, ahead of market advances, this gauge normally will begin to show positive divergence, and begin to trade relatively better from a low level.
At present, this should be something to watch carefully in the weeks to come, as it will likely begin to turn down most likely ahead of the SPX beginning an eventual consolidation.
At present, this has shown steady gains from October, and while some brief sideways consolidation has happened over the last month, it has not begun to turn down in a meaningful way. I’ll relay this again in 2024 and will highlight when it begins to turn back lower.
S&P 500
Santa Claus Rally period is underway; Median gain since 2008 is 1.1%
It’s that time of year where markets have entered the low volume holiday period that normally delivers above-average gains.
As the table shows below, the Santa Claus rally period, which encompasses the last five trading days of the eyar along with the first two of the new year, has normally proven to be a bullish time for investors.
Since 1950, this has proven to show an average return for SPX of +1.0%. I chose to show data since 2008 since the difference is minimal, and the median return since 2008 has been +1.1%.
This gauge was first studied by Yale Hirsch, who developed the Stock Traders Almanac. As the saying goes, “ If Santa Claus should fail to call, Bears will come to Broad and Wall”.
While I am personally skeptical of the efficacy of a down period into year end being meaningful for next year, I do put some conviction in the “First five trading days” of a new year, along with the first month’s performance, largely for purposes of sector leadership.
However, I felt it to be important to showcase these performance stats for this time, as it tends to be positive, and SPX has shown above-average performance. (Special holiday thanks to Fundstrat’s own Matt Cerminaro in helping to compile this data).
