July Outlook: Bullish 2024 Outlook Continues But Ready for a Breather By: Jeffrey A. Hirsch & Christopher Mistal | June 27, 2024 | Email | Print

Midyear Russell Index and institutional fund portfolio rebalancing, along with Q2 earnings season and the start of the second half of the year have made July the best month of the third quarter. We continue to expect the bull market to march ahead and achieve more new highs through yearend. But the outsized gains so far this year may have the market out a little too far over its skis. 

 

NASDAQ’s 12-Day Midyear Rally over the last three trading days of June through the first nine trading days of July discussed in the July Almanac is also likely due to all the late-June/early-July rebalancing and Q2 earnings reports. After this run, which usually peaks out near mid-month, a mild pullback in the 5-8% range would not be surprising. Affectionately referred to as “Christmas in July” this midyear rally is clearly visible here in the chart below. 

 

 

As a reminder we issued our NASDAQ Best 8 Months Seasonal MACD Sell signal on Tuesday, June 25. Considering NASDAQ’s historical Midyear Rally began the next day this was not the timeliest signal. Instead of outright selling QQQ and IWM positions we suggested one way to trade the Sell Signal along with the Midyear Rally would be to continue to hold the positions with a tight trailing stop loss of 1% or so, updated daily on the close. This way if the Midyear Rally takes place, additional upside can be realized while protecting existing gains.

 

 

Bullish election year forces have conspired with a generational technology macro trend from generative AI and all the related and ancillary industries to drive the market higher than anyone expected. In fact, we surmise that this AI may very well be the “culturally-enabling, paradigm-shifting technology” that fuels the next leg of our 2010 Super Boom Forecast we updated here in April. 

 

But looking at our updated Election Year Seasonal Charts below for S&P 500 and NASDAQ it is clear that the current 2024 market is tracking the trend, yet at least one, if not several standard deviations above the levels of the multiple election year and other seasonal scenarios we have mapped out. At this juncture S&P is even 5 percent points above the most bullish Top Q1 Election Years set up. The market has already reached and surpassed the 8-15% level of our 2024 Annual Forecast Base Case projection. While this brings our Best Case forecast of 15-25% gains for 2024 into play, the market looks like it’s due for some mean reversion. 

 

We have added the brown line showing the average seasonal pattern of the 7 years in the table shown below these charts in which bullish April was down followed by both May and June being higher as that looks like the case this year with one trading day left in June. This brown line seasonal pattern shows a 9% pullback from the August high to the October low. Only three of these 7 years are election years: 1952, 1960 and 2004. 5 of the 7 years suffered a 2.3-7.8% correction in Q3, 1987 was hammered -23.2% in Q4 due to the ’87 crash and 1993 was barely bruised off -0.3% in Q2. 

 

 

 

 

Unless something dramatic transpires this evening in this unprecedented Presidential Election debate and barring any major surprises over the next two weeks, look for the Midyear Rally to pull the market higher into mid-July. After that the market will be susceptible to election campaign and political missteps, Fed jawboning, economic data disappointments and the Summer Market Volume Doldrums (2024 STA page 50). Beware of the Summer Rally hype (2024 STA page 74), as it is the weakest rally of all seasons and can suck you in to a dull market environment where market participants have shifted their focus to the Presidential campaigns and debates and summer activities.

 

Almanac Investor subscribers have been enjoying the market’s handsome gains since going long last October, so sit tight take some profits, tighten up stops, generate some cash and hold some short-term bonds paying 5%+ while we wait for the fatter pitch. Have a happy and safe Independence Day Holiday!

 

 

NASDAQ and S&P 500 surged in June to new all-time highs, but DJIA did not. Instead, DJIA has been marking time oscillating around its 50-day moving average (1). Bullishly, DJIA support around 37,700 has held and DJIA has been making a series of higher lows, but also the beginning of lower highs. Thus far the positive impacts of the AI-fueled technology-driven rally have not boosted DJIA. Absent catalyst, DJIA could be slipping into a “Worst Months” trading range.

 

DJIA strength during the holiday shortened week ending June 21 and earlier this week was sufficient to reverse both the faster and slower moving MACD indicators to their current modestly positive state (2). Due to the limited duration of gains, both MACD indicators have already begun trending back toward a negative crossover. DJIA has lagged NASDAQ and S&P 500 throughout the year and there still is no sign that this will change.

 

 

Much of DJIA’s lagging performance can be seen comparing weekly results over the last 20 weeks. The gap has only grown larger since the week after mid-May, ending May 24. DJIA (3) has declined in three of the last five weeks compared to just one weekly loss for S&P 500 (4) and NASDAQ (5). Although DJIA has been down on a Friday or a Monday during six of the last seven weeks, DJIA has not recorded a Down Friday/Down Monday (DF/DM) since mid-April. Should DJIA record a DF/DM in coming weeks, it may be prudent to closely review market conditions and remaining portfolio holdings.

 

Market breadth in June was not as solidly bullish as month-to-date gains would suggest. Last week (ending June 21) was the only week (6) in June where Weekly Advancers outnumbered Weekly Decliners and even then, NASDAQ was essentially unchanged, up just 0.003%. In the prior two weeks, S&P 500 and NASDAQ had solid gains while Decliners handily exceeded Weekly Advancers. Concentrated gains, those made by a handful of stocks or a narrow sector, are fine as long as they remain gains. However, should the appeal fade, losses could also be just as spectacular.

 

In concert with concerning market breadth metrics, Weekly New Highs and New Lows have been heading in the wrong direction since mid-May (7). New Weekly Highs have retreated while New Lows have expanded. With S&P 500 and NASDAQ setting new all-time closing highs, broader participation would be expected. Instead, it would appear that the market may be in the process of forming an interim top.

 

Economic data has continued to show signs of slowing growth. This has supported the existing trend in the 30-year Treasury bond yield lower (8) (and the 10-year Treasury bond yield, not shown). Q1 GDP was revised slightly higher today but remains at its slowest pace since 2022. This will likely only make the Fed’s job all that much more challenging as the slowing growth has yet to result in a meaningful retreat in inflation readings.