Market Commentary: Sentiment and Santa Setting the Market Tone for 2024


Four More Reasons ’24 Should Be a Good One for the Bulls

“Investing is like dieting. It is simple, but not easy.” — Warren Buffett, Berkshire Hathaway

  • Looking ahead to 2024, there are four reasons for bulls to smile.
  • Sour consumer sentiment has improved as income gains, rising home prices, stock gains, low gas prices, and falling mortgage rates have kept households in the holiday spirit.
  • The “Santa Claus Rally” calendar effect started on Friday, Dec. 22, and runs through Jan. 3, capturing a strong period for stocks as well as a potential harbinger for things to come.

One year ago last week, we moved to overweight equities, and we’ve been there ever since. This wasn’t a very popular call at the time, as nearly everyone else on Wall Street was expecting a recession and the continuation of the bear market from 2022. Going against the crowd will always ruffle feathers, but we saw many reasons to do it then, and we see many more to expect continued good times in 2024.

We wrote Why We Think The Bull Market Should Continue In 2024 six weeks ago, and all stocks have done since then is go up every single week.

In fact, the S&P 500 is up a very impressive eight weeks in a row currently, the first eight-week streak in about six years. Long weekly win streaks like this may seem bearish, but they are usually not. In fact, streaks like this often appear in bull markets and continued strong price action is normal. Reviewing all the seven-week win streaks (not including last week) that have taken place since 1950 showed that stocks were higher one year later 25 out of 29 times, or more than 86% of the time. That’s the first recent signal we’ve seen that suggests the next 12 months could provide another good year for the bulls.

Another positive indicator for the markets is there have been huge jumps in breadth, otherwise known as participation. For most of this year, market analysts continually emphasized that only seven stocks were going up. We disagreed with this analysis, as many stocks were indeed rising. But the blast of buying pressure over the past several weeks further confirms there are way more than only seven stocks supporting markets now.

During the week of Dec. 11, more than 90% of stocks in the S&P 500 rose above their 50-day moving averages. This might mean we are near-term overbought, but this kind of strength is often evident at the beginning of bullish moves. Over the past 20 years, the S&P 500 has moved higher 14 out of 15 times one year after such strong participation and has risen 16.1% on average. This is yet another clue stocks could be in a for a strong year in 2024.

Another rare, yet potentially bullish, signal provides our third reason to expect higher prices in 2024. Recently, more than 40% of the components of the S&P 500 saw an RSI of more than 70. The RSI (or Relative Strength Index) is an overbought/oversold indicator, the general guideline of which is above 70 is overbought and below 30 is oversold. You can read more about the RSI from our friends at Investopedia here.

A large spike in the number of overbought stocks in the S&P 500 is a very bullish signal. Thanks to data from Ned Davis Research, we found there were only four other times since 1972 (as far back as NDR data goes) when more than 40% of stocks were at overbought levels. The average return one year later was an extremely impressive 25.7% and stocks were higher all four times. In fact, the worst return one year later was “only” 17.6% after the signal in February 1991. I don’t know about you, but I could live with a 17% gain in 2024. 😉

Here’s our final reason to be bullish in 2024. When stocks have dropped more than 10%, such as they did in 2022, then jumped more than 10%, such as they did this year, the following year has tended to be quite solid. Stocks have risen six out of six times with an 11.7% gain on average.

As Uncle Warren told us in the quote at the top of the section, investing can be tough. There will always be reasons to worry and reasons to sell. Yet, some of the very best investors in history are those who simply used the scary times to add when others were selling.

It isn’t always that simple, but look at 2023. The overwhelming evidence suggested stocks would go higher, and they sure have. That’s why we invest based on facts, not feelings. As we’ve noted many times the past few months, we continue to see many reasons to expect continued good times in 2024.

Americans are Feeling More Jolly

It’s been a puzzle as to why Americans have been in a funk, despite strong economic growth, low unemployment, rising incomes (even after adjusting for inflation), and even strong consumption trends. In other words, Americans were out and about spending on the back of strong incomes, but confidence was plunging. The University of Michigan’s consumer confidence index sunk to levels below those seen in 2020 amid the pandemic and even levels recorded during the global financial crisis. The Conference Board’s measure wasn’t as bad, but even that index was well below pre-pandemic levels. My colleague Barry Gilbert termed this “irrational sullenness.”

But this may be changing.

‘Tis the Season to Be Jolly, and It Seems to Be Catching On

Both major measures of U.S. consumer confidence have now risen for two consecutive months. In December, The Conference Board recorded the largest monthly increase since early 2021.

There are three primary reasons confidence is rising.

First, stocks have rallied recently. The S&P 500 has climbed almost 16% since Oct. 27, which was when my colleague Ryan Detrick called the bottom for this most recent downturn. This surge has led to the S&P 500 gaining almost 26% this year, including dividends. That’s cause for cheer by itself, but it’s even better considering that gain has entirely erased last year’s losses.

Second, gas prices have fallen 20% since mid-September. Nationwide, average gas prices have fallen from $3.88/gallon in mid-September to $3.12/gallon. That’s as good a Christmas present as any. Gas prices are perhaps the most salient part of inflation, and lower prices give households the perception that inflation is easing, never mind what official data suggests.

Third, 30-year fixed mortgage rates have fallen from 8% to almost 6.5%. Thanks to markets pricing in interest-rate cuts by the Federal Reserve next year, mortgage rates have fallen sharply. While 6.5% is higher than the mortgage rate most homeowners pay, which is 3-4%, there’s a massive cohort of 25-34-year-olds who want homes but are being priced out, assuming they can even find a home to buy. Lower mortgage rates boost perceptions of home affordability.

These three trends combined with three conditions already in place creates an even more encouraging market picture.

The labor market continues to run strong. The data has shown the labor market has been strong for a long time, with the unemployment rate below 4% throughout this year. But perhaps more importantly for consumer confidence, the perception of the labor market has improved. In The Conference Board’s consumer survey in December, the percentage of respondents saying “jobs are plentiful” rose 2.1 points to 40.7%, while the percentage of respondents saying “jobs are hard to get” fell by 2.4 points to 13.2%. The “labor differential,” which is the difference between the two, edged up 4.5 points to 27.5, which is close to pre-pandemic levels and suggests Americans are feeling good about the labor market.

Home prices are rising and are currently at record levels. The Case-Shiller National Home Price Index has risen for eight straight months (through September), increasing 3.8% during this period and more than erasing last year’s downturn. For middle-income households (25th to 75th percentile), most of their wealth is tied up in their homes and stock ownership is relatively low. So, rising home prices is a boost to household net worth. Even if households can’t access that wealth due to higher mortgage rates, having a higher net worth is cause for cheer.

Savers can now get higher rates in savings accounts, CDs, and money market funds. For a decade after the global financial crisis, a common refrain was that the Fed was “punishing” savers. Well, that’s changed. Thanks to aggressive rate hikes that took the federal funds rate to the 5.25-5.5% range (the highest in 20-plus years), savers can earn a lot more on their savings. Of course, enjoy it while it lasts, because rates have probably peaked, and it’s likely the Fed will cut rates by about 1.0% next year.

This wonderful cocktail of positive developments for American households is welcome news around the holidays. Households were already fairly positive about their own finances (also witnessed by their willingness to spend), but now their perception of the broader economy is turning up.


Here Comes the Santa Claus Rally 🎅🎄🎁🦌

“If Santa should fail to call, bears may come to Broad and Wall.”

— Yale Hirsch, Hirsch Organization

One of the little-known facts about the calendar effect called the Santa Claus Rally (SCR) is it doesn’t take place during the entire month of December; it lasts only seven days. Discovered in 1972 by Yale Hirsch, creator of the Stock Trader’s Almanac (carried on now by his son Jeff Hirsch), the real SCR is the final five trading days of the year and first two trading days of the following year. In other words, the official SCR began Friday, Dec. 22.

Historically, it turns out these seven trading days indeed have been quite jolly, as no seven-day stretch is more likely to be higher (up 79.5% of the time), and only two have a better average return for the S&P 500 than the 1.32% average return during the official Santa Claus Rally period.

The following chart, which we shared at the start of the month, shows the latter half of December is when most of the seasonally strong gains occur. Of course, this year is anything but normal as the market experienced huge gains during the first part of the month.

These seven days do tend to be in the green. In fact — fun trivia stat — the SCR has been higher the last seven years and hasn’t been higher eight years in a row since the 1970s. The all-time record was an incredible 10-year winning streak in the 1950s and 1960s. The table below shows all the SCR periods since the tech bubble and how the S&P 500 performs after each period.

Beyond the rally, what really matters to investors is when Santa doesn’t come, as Hirsch noted in the quote to start this section.

The table below shows recent times investors were given coal during these seven days, and the results aren’t very good at all. The last five times (going back 30 years) that the SCR was negative, January was down as well. Notably, there was no SCR in 2000 and 2008. These were not the best times for investors, and the missing rally was potentially a major warning that something wasn’t right. Lastly, the whole year was negative in 1994 and 2015 after no Santa. We like to say in the Carson Investment Research team that hope isn’t a strategy, but I’m hoping for some green during the SCR!

The average yearly gain for the S&P 500 has been 9.1% since 1950 and the index has risen 71.2% of the time. But when there is an SCR, those numbers jump to 10.2% and 72.4%. They fall to only 5.0% and 66.7% when there is no Santa. While this is only one indicator and investors should consider many factors when making investment decisions, we wouldn’t advise ignoring this trend.

The bottom line: Stocks are at or near all-time highs, and we’ve been quite vocal about why stocks would do well this year. Looking ahead, we don’t see any reason not to expect Santa to come once again.


This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

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