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Seasonal Indicators 0 for 2 Through Six Innings, with the Final At-Bat Coming Up

Seasonal Indicators 0 for 2 Through Six Innings, with the Final At-Bat Coming Up

January 09, 2024

I have written recently about seasonal keys to watch for in the stock market. The three I have focused on are the Santa Claus (late December) rally, the first 5 trading days of January and performance for this first full month of the year.

So far, we are 0 for 2 in important seasonal trend performance (Santa and January’s first 5 trading days). With these negative events having followed the dramatic rally that ensued after the October low, where does the market go from here?

We turn to the Stock Trader’s Almanac for clues.

Jeffrey Hirsh’s brilliant publication has said that when we see a positive seasonal trifecta, it will provide fuel for a yearlong rally. Historical results can be stunning.

Unfortunately, we are only left with the January Barometer to hang our hopes on. Could this save the year?

Possibly.

A positive January barometer does offer some hope, as we can see from a look at 1985 and 1991, for instance. With the first 2 legs of the Trifecta negative, a positive full month of January still led to roughly a 26% gain for each of those full years. 1993 also only completed one positive leg, the full month of January, yet managed to provide a 7% gain.

But what if the full month of January doesn’t bail us out?

When a down January completes a negative trifecta, the results are far more muted, with a median gain of just 1.8%.

In the 8 instances this has happened over the last century, 5 of the years have still been positive while 3 were negative – the best being 1982 when the S&P was up 15% and the worst was 2016, down 38%!

Further, while election years tend to be positive, they have not been as strong as pre-election years.

Now we have to decide, either that November/December rally off the lows meant something or it didn’t. Was it a complete head fake, or does it still imply that 2024 will be a bit better than investors are currently envisioning?

Sticking with what I recently wrote about my positive outlook for 2024 earnings, I still suspect that the rally was an indicator that positive surprises lie ahead.

It seems there has been more pent-up demand for profit taking, perhaps with investors having pushed out the calendar on their capital gains after a year like 2023.

Further, the elephant in the room continues to be interest rates. After the recent release of Fed minutes, the consolidation started. Right on cue, bond yields rose and NASDAQ futures sank, with dimming hopes for a near-term Fed cut providing a reason to take profits in what had become a short-term overbought market. Traders and speculators reacting to this one datapoint are likely to be spoofed yet again.

For us here at Granite Wealth, this changes nothing; all along we have felt that rate cuts will not arrive until later in the year.

In short, we are left looking for – admittedly, in some respects hoping for – a positive full month performance from January. If it doesn’t arrive, we will reassess market technical conditions at that time.

For now, investors should expect more volatility, but still in the context of an uptrend. Be willing to cautiously buy the dips and expect more clarity to the market’s path to arrive soon. The second half of 2024 may have to carry the load, but we suspect a normal, short-term corrective phase to result from recent action, one which will allow for more upside later.