2024 Market Outlook – Part II

In yesterday's HX Daily note, we discussed how different the past five years have been in the economy and stock market.

The world's unprecedented actions to deal with COVID have led to a combination of economic indicators that have never been seen before.

What is most interesting – and makes our 2024 outlook more difficult – is that potent signals support both BULLS and BEARS.

Yesterday, we discussed the powerful negative signals from the rapid rise in interest rates.

Historically, rates going up this quickly has resulted in economic problems and the stock market taking a tumble.

On the other side, though, there are a host of equally powerful signals historically that argue that the stock market will have a good year.

Many of these signals come from what is called “technical analysis.”

Look up the term, and you will find the following definition…

This is a good definition, but we would boil it down slightly more…

There are many levels to that short sentence. Still, we believe (and have a track record to prove it) that studying patterns in past data can help you make better bets about the future.

Price data results from the interaction of thousands (millions?) of market participants in any particular stock. We can’t know what each of them is thinking and can never figure out how many think one way or the other.

However, looking at the result of their interaction – the price – we can see the balance of their views about the stock.

Through time, this data will move in patterns and trends.

Think of it this way – very seldom does a boat on a river make a 180-degree turn. The currents are pushing it, and these are powerful forces that persist.

There are also groupings of signals that have historically been very accurate.

Across the recovery in the stock market in 2023, we saw tons of these types of signals. Rare signals that pointed to the stock market moving higher. Despite the skepticism and (legitimate) concerns about the economy – like the inverted yield curve we discussed yesterday.

We could go through dozens of these signals, but we will use a high-level example that sums it up nicely.

One signal that happened just recently is that the S&P 500 hit a new all-time high after not having done so in quite a long time.

Here is a chart that was put out by awesome investment research firm Bespoke Investment Group, who we recommend checking out.

This chart shows all streaks of over a year between all-time highs in the S&P 500.

You can see here that this recent streak (broken on January 19) was by no means the longest, but it was pretty long. It ranked as the 6^th longest in the last century.

The powerful part of this table is looking at what happens across future periods – especially across three months and one year.

Across those specific periods, the stock market was higher in every case except one – 2007.

It was also higher on average than across all other periods.

When we see this happen – a new record high – after over a year, the stock market is almost always higher and goes up more than usual.

Why does this happen?

Let’s go back to our discussion of technical analysis and trends. 

We can't know the psychology of all the market participants.

We do know that the stock market was below the old high for over two years. Recently, though, it was able to break through to a new one.

This shows a significant trend that has enabled the market to do this after such an extended period.

Historically, it is unlikely that it turns back around quickly when something this powerful happens. The data shows it has only happened once in the last century!

Think of our boat on a river analogy above. The currents are powerful, and if you CAN turn around, it means you might be on another river…

What about 2007?

This was the ONE example that didn’t fit the pattern. Do we need to be concerned about that potential outcome?

Absolutely! Remember that 2007 was also one period with a yield curve inversion.

During that period, the rapid rise in interest rates resulted in the housing bubble bursting. That unwind shook the overall economy and resulted in the bankruptcy of my alma mater – the famed brokerage firm Lehman Brothers.

The table shows that a year after the signal (5/30/07), the stock market was down -8.62%. Not so bad…

It doesn’t show that in the NEXT year, the S&P 500 was down another -34% - ouch!

Could the current environment be the same?

Maybe…but let's return to what we discussed in yesterday's newsletter – our readers will be prepared!

Our TRADING products – HX Trader and HX Income – have a track record of producing returns during difficult times. They do even better when the stock market is strong or stable.

Our INVESTING product – HX Legacy – is also built for both kinds of markets.

For a limited time, HX Research is honoring all Empire Financial subscribers with the opportunity to become a founding HX Research subscriber, click here to access. 

It is only long recommendations, so in a complex stock market, it may still lose some money, but the ideas have great risk/reward, so the portfolio tends to do better than the market.

When the stock market is good? The portfolio can crush.

Our overall outlook on 2024 is that we are still dealing with how DIFFERENT the most recent five years have been with COVID.

We think we could see either a terrible or a terrific stock market. This is not always the case…

Regardless of what happens, though, our readers will be prepared!