QVMM - Why No Santa Claus Rally For The S&P 500 In 2024?

2024-01-08 19:55:00 ET

Summary

• There was no Santa Claus rally in the last week of 2023 and the first two trading days of 2024 – which mark the technical definition of a Santa Claus rally.
• The last trading day of 2023 was down and so was the first trading week of 2024.
• Before you read too much into that and conjure up any doomsday scenarios, consider that this is actually a normal pullback after rising nine weeks in a row, which is pretty rare.

There was no Santa Claus rally in the last week of 2023 and the first two trading days of 2024 – which mark the technical definition of a Santa Claus rally.

The last trading day of 2023 was down and so was the first trading week of 2024. Before you read too much into that and conjure up any doomsday scenarios, consider that this is actually a normal pullback after rising nine weeks in a row, which is pretty rare.

We basically kept postponing a correction that seemed surprising when it arrived. So far, the correction is not very big, but because we had so few down days in November and December, it felt bigger than it was.

There is an old trader’s saw that reads “as goes January, so goes the year”. Because of the need for instant gratification that has come about with computerized trading, it got shortened to “as goes the first week of January, so goes the year,” but I would not put too much weight on that maxim.

I clearly recall a much sharper downdraft in early 2016 and a very respectable finish, so those trading shortcuts are not ironclad.

It is impossible to say how January will end right now, but I would not be surprised if it is up because of the broadening of the rally in November and December – that is, if there are no geopolitical surprises, such as Iran and Lebanon being drawn into the present Middle Eastern crisis, which is a clear possibility.

One sector where one cannot see a current correction is the financial sector (in XLF , the Financial ETF):

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The S&P Financial sector actually made a fresh 52-week high last Friday, as money is flowing out of tech into previously under-performing parts of the market.

The problem is that some of the tech stocks that are seeing outflows have $1, $2 or $3 trillion market caps (dubbed the Magnificent 7), which causes the S&P 500 to dip, as they have disproportionate weight in the index, even if other important sectors are rallying.

Still, one thing I have learned over the years is that if the financial sector is strong, the stock market is on firm footing, which is clearly the case at the moment.

Right now, we have the mirror image of March 2023 when financials dramatically under-performed the market. There were reasons for concern then, but on a relative basis, the financial sector just made a post-recovery high after the Silicon Valley Bank fiasco.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The financial sector should keep making fresh recovery highs if we avoid a recession in the U.S. and if the Fed cuts interest rates at least three times in 2024.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Inflation has been moving in the right direction, and further good news will solidify the case that the Fed will clarify its rate-cutting path.

The Consumer Price Inflation ((CPI)) comes out this week, and it could be a big catalyst for the market. The first rate cut could be as soon as March, if inflation numbers cooperate.

All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.

Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.

Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.

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