The following article, Historical Data Shows Hope For Year-End Rally, But Near-Term Outlook Remains Uncertain, was first published on Flag And Cross.
The stock market’s path has been uncertain since the broader uptrend stalled in August. In the face of numerous economic and geopolitical challenges, the odds of a significant breakout from the current lackluster phase seem slim.
However, there is a glimmer of hope in historical trends.
What Happened: According to data from FundStrat, the broader S&P 500 Index posted an average gain of 3.6% between Oct. 17 and the year-end on years when the index gained more than 1.4% in the first five days and showed negative performance for the previous year. CNBC’s “Squawk on the Street” co-anchor Carl Quintanilla shared this information on X (formerly Twitter).
This data is based on market performance since 1950. In seven years when both of these conditions were met, the market advanced about 86% of the time.
However, the near-term outlook may not be so optimistic. The average change from Oct. 17 to the end of the month in these years was a negative 0.2%. Although October saw an average gain of 2%, November and December posted average gains of 1.2% and 2.5%, respectively. In these seven years, the S&P 500 gained an average of 25.3%, with a win probability of 100%.
If you’re hoping for a year-end rally, you’ll enjoy this screen:
Years When First 5 Days up >1.4% and Previous Year Negative:
— Carl Quintanilla (@carlquintanilla) October 18, 2023
Why It’s Important: Despite the sluggish movement seen in August and September, the year-to-date performance of the S&P 500 stands at 13.90%. Expectations of positive earnings growth could support the market during the earnings season. FactSet’s research indicates a cumulative earnings growth of 0.4% for S&P 500 companies, marking the first positive growth since the third quarter of 2022.
The Federal Reserve’s rate-setting committee, the Federal Open Market Committee, is set to meet from Oct. 30 to Nov. 1 to decide on the Fed funds rate. Recent comments from Fed speakers have conveyed a dovish message, raising hopes for at least a pause in the tightening cycle. Such a decision and hints of an end to the tightening cycle could trigger a stock market rally.
However, the Federal Reserve faces a delicate balance as inflation remains persistently above the central bank’s target. Additionally, economic growth is holding up reasonably well despite concerns about an impending recession. A recent Commerce Department report revealed a robust 0.7% month-over-month increase in retail sales, more than double the 0.3% expected by economists, underscoring the economy’s resilience.
Geopolitical tensions in Eastern Europe, the Middle East, and China could potentially have a dampening effect, given their potential impact on economic growth.
Nonetheless, the traditional Santa Claus rally, typically observed in the second half of December, could lift the market.
Produced in association with Benzinga
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