I was thinking today about the following story detailing Boeing’s failing contract negotiations with its union: https://www.zerohedge.com/markets/boeings-best-final-offerrejected-union-strike-drags
This isn’t the only noteworthy possible labor disruption, as unions at some of America’s largest ports are threatening to strike, as well. If crippling strikes like these are imminent, why does the stock market continue to advance?
As experienced investors realize, a lot of this news is already known and baked into prices already> Indeed, it’s just as reasonable to argue that these threatened strikes set up for positive market moves once they’re inevitably settled.
This is why, rather than predicting based on our own personal reactions to headlines, we like to take a disciplined, unemotional approach that listens instead to what the market is telling us.
So, what are technical indicators and seasonality suggesting we should do now?
The market is always looking ahead, of course. Is the market getting it wrong this time?
Not in the bond market, based on action in the 10-year yield. Peaking at 4.69% on April 16th, investors rightly anticipated the Fed loosening, by declining to 3.60% on the day before the meeting, September 17th. The worst that can be said was that the market was early in its rate cut expectations, as we predicted the entire year. Backing and filling has taken place since.
How are stocks likely to handicap the Q4 action? Well, October is well known as the month of crashes but in fact should be relabeled as the month of the bear market killer.
According to the Stock Trader’s Almanac, October has a solid record of snuffing out declines. However, some early pain often leads to a late month recovery.
Could stocks be looking at the coming earnings reports with hesitation, as has been the usual drill over the last few years? The trend in earnings takes a while to be baked. Disregard the early reporters, the banks and financials. The real action commences when the growth stocks report. This year Amazon reports on October 31st, Meta on October 30th, Netflix on October 17th and Lam Research on the 16th.
The chart below shows the historical performance. Two things stick out to me, which I note below the graph.
1) The NASDAQ line……drifting downward amidst the uncertainty of earnings trends, then once confidence builds in the trend the market regains its momentum. Thus, a bear market killer.
2) This trend is more pronounced in election years, as the tendency for a 4th quarter tends to wait until the election is over to vanquish this uncertainty.
That’s exactly the way I see things playing out in 2024. Post-election, a strong rally ends the year. As we have been all year – and since the 2022 low – we remain bullish.
