Boo! Fittingly stocks got spooked today on Halloween. Octoberphobia is real. Disappointing reports from Microsoft and Meta as well as other AI tech boom related stocks, including our own Super Micro (SMCI) as well as fears other tech shoes will drop knocked stocks for a loop today. NASDAQ was hit the hardest down 2.76%.
We have already sold half of our SMCI position twice and now hold a quarter position in the stock portfolio without a stop or a buy limit. This may be the better entry point we are looking for as we discussed in the
Stock Updates three weeks ago. SMCI remains on Hold. We are not recommending a buy at this juncture. We still need to see what happens when the dust settles around the news of the accounting issues and the disclosure that Ernst & Young resigned as its auditor.
As for the market as a whole let’s remember what is printed in the Almanac on page 99: “
Late October is Time to Buy Depressed Stock Especially Techs and Small Caps.”
November is also the Top Month in Election Years, and the beginning of the Best Rolling 3-Month Span November-January and the “Best Six Months” of the Year November-April.
The seasonality naysayers are puffing up their chests as the market did not decline during the “Worst Months.” We have been warning of this as everyone on The Street has been talking about it for months, setting off our contrary antennae. Let’s recall the late Edson Gould’s astute reminder we have referenced before that, “If the market does not rally, as it should during bullish seasonal periods, it is a sign that other forces are stronger and that when the seasonal period ends those forces will really have their say.”
We contend the inverse is also true. If the market doesn’t decline or correct substantially as it should during bearish seasonal periods, other forces are likely stronger, leading to further gains in the subsequent bullish season. With the best months of the year commencing tomorrow, steady and resilient economic readings, broadening market participation, supportive technicals and NASDAQ hitting a new all-time yesterday we expect the fourth quarter rally to ensue after the election is decided leading further highs.
Holding Until Election
The market’s skittish behavior today and the elevated VIX is emblematic of traders holding their breath or squaring positions ahead of this contentious election and fears we won’t get an expeditious decision. So, the market will likely remain in a holding pattern until we have a clear winner. After that the history of market gains from Election Day to Yearend is encouraging. As you can see from the tables below the market tends to rally from Election Day to Yearend with a few exceptions due to exogenous factors.
Profit taking at the end of 1984 kept stocks flat after the rally off the July bear market bottom in anticipation of Reagan’s landslide reelection victory. The infamous undecided election roiled stocks at the end of 2000 amid the 2000-2001 dotcom bear market. The Great Financial Crisis and 2007-2009 generational bear market plunged further in late 2008 on shrinking economic data and uncertainty over a change in party and the new incoming, unknown Obama administration. The mushrooming European Debt Crisis had the stock market on edge in late 2012.
But overall, from Election Day to Yearend DJIA is up 72.2% of the time with an average gain of 2.38%. S&P 500 is up 66.7% of the time with an average gain of 2.03%. NASDAQ is up 76.9% of the time with an average gain of 1.50% and Russell 2000 is up 61.5% of the time with an average gain of 4.93%.
We do have our concerns about the arguably unsustainable deficit spending and the ballooning national debt. Gold and other hard assets are likely rising because of it along with heightened geopolitical risk. These fiscal issues will either be addressed with some tough measures and/or by a crisis of some sort. But we do not expect that anytime over the next 12-18 months or so. Midterm election year 2026 is the next likely point when we envision these issues coming home to roost.
For now, the 2024 election results will likely have zero impact on the US or Global markets and economy. The Tech Super Boom is too powerful in our view and the bull market should power on through its third year. We don’t expect another big double-digit year like 2023 and 2024. Our early outlook published in the just-released, brand-new 58th Edition 2025 Stock Trader’s Almanac (which all subscribers will be receiving shortly) projects “the market to be up 8-12% for the year with pullbacks in Q1 and Q3.”
Regardless of who wins the election, economic and corporate readings, macrotrends and market action, as well as the recent history of post-election years suggest the bull market rolls on through 2025. The 2025 STA highlights how, “Post-election years have improved since WWII and since 1985 DJIA averages a gain of 17.2% with eight up years and two down. This is the best average gain of the four-year cycle over this period.”
As for what a Harris vs. a Trump presidency means for investors vis-à-vis different sectors, two trends standout to us. Energy and small cap stocks. Counterintuitively, traditional energy is likely to underperform with a Trump administration that is expected to be very supply friendly. We already have too much supply as illustrated by the current softness in oil and gas prices. The AI tech sector has already made it clear that they have decided to go nuclear to power their energy needs. (See the Microsoft Three-Mile Island deal.)
A Harris administration would be more bullish for traditional energy as they are likely to crimp supply with less supply friendly clean energy policies. Small caps are more likely to thrive under a deregulatory Trump administration while potentially hindered by stifling regulations and higher taxes under a Harris administration that tends to impact smaller companies more.
Please join us for our monthly member’s only webinar, November 2024 Outlook and Update on Wednesday November 6, 2024, at 2:00 PM EST here:
https://attendee.gotowebinar.com/register/5134088625022881630 where we will delve deeper into technical analysis, interest rates, the Fed’s next moves and recent market action with time for Q & A at the end where you able to ask Chris and Jeff anything.
Pulse of the Market
In the time since issuing our Seasonal MACD Buy signal on the close of trading on October 11, DJIA initially traded higher to new all-time closing highs and above 43,000 for the first time ever (1). Celebrations for these milestones were short-lived as interest rates continued to climb higher and expectations for another big interest rate cut from the Fed faded. Presidential election jitters are also likely weighing on the market as neither candidate appears to have a statistically significant lead in the polls.
DJIA’s loss of momentum is confirmed by faster and slower moving MACD indicators (2). Both MACD indicators turned negative on October 23 and remain so today. Inline with historical weakness in election-year Octobers, DJIA did finish this October in the red, down 1.3%. Today’s across-the-board retreat has also pulled S&P 500 and NASDAQ into the red for October, down 1.0% and 0.5% respectively. This late October market pullback does appear to be setting November up to deliver on its best month of election years record.
Over the last five weeks, DJIA (3), S&P 500 (4), and NASDAQ (5) did extend their respective weekly winning streaks. DJIA and S&P 500 streaks lasted five weeks while NASDAQ made it to six. Barring a sizable NASDAQ rebound on the first trading day of November, its weekly streak will likely end this week. Once Election Day passes, it would not be surprising to see the indexes start another winning weekly streak as this has been the tendency for the majority of the year.
Weekly market breadth data has generally been consistent with the market’s weekly ups and downs over the last five weeks (6). NYSE Weekly Advancers outnumbered Weekly Decliners in positive weeks while Weekly Decliners were the majority during negative weeks. One noteworthy exception was the week ending October 4, when Weekly Decliners outnumbered Weekly Advancers with modest gains from DJIA, S&P 500 and NASDAQ. Unlike past occurrences, this most recent one did not appear to have any meaningful impact on the market as it continued to rally the next week.
Weekly New Highs are one area of potential concern. After peaking in the second half of September, they have been trending lower (7). With the indexes reaching new all-time highs in the first half of October, more new highs would have been anticipated. We suspect that election jitters may also be showing up in New High data with traders and investors unwilling to commit further capital until the outcome is known.
Treasury yields have decisively reversed and have been trending higher over the past four to six weeks (8). The 30-year Treasury bond yield rose from under 4% in the first half of September to nearly 4.49% last week while the 90-day Treasury yield climbed to 4.81%. With the Fed Funds rate at 4.75% to 5.0%, it would appear the bond market is currently not expecting another Fed rate cut within the next 90 days. It could also signal that federal debt and continued deficit spending is becoming a concern.