I’m Still ‘Bullish’… But Ready for the Next ‘Buying Opportunity’

By now, regular Chaikin PowerFeed readers know all about my market optimism for 2024…

In short, it draws heavily on the “bullish” tendency of stocks in a presidential-election year.

The S&P 500 Index made another new all-time high this week. It closed at 5,175 on Tuesday. It’s up about 8% so far this year.

Notably, the move to new highs features a broadening out of strength within the S&P 500…

The Invesco S&P 500 Equal Weight Fund (RSP) has finished higher for six straight weeks. That tells us the market’s current strength isn’t isolated to the “Magnificent Seven” stocks.

Meanwhile, a stronger-than-expected U.S. economy and expectations of lower interest rates have triggered a flood of new money into stocks…

So far this year, more than $90 billion has flowed into global equity exchange-traded funds (“ETFs”). And over a recent three-week stretch, $35 billion moved into U.S. equity ETFs.

Now, the reality is that bull markets can – and often do – climb a “wall of worry.” But so far in 2024, investors have thrown caution to the wind and not really worried at all.

And as I’ve said time and again, the biggest gains are likely still ahead of us…

The final seven months of presidential-election years (from June 1 to December 31) are often the best-returning months. In 16 of the past 18 presidential-election years, the S&P 500 was up over that span. And in all those instances, the index averaged a 10% gain.

But for now, we’re in the “March to May” time frame of the presidential-election-year pattern. Historically, this part of the pattern tells us to look for a buyable low in stocks.

In other words, the next three months are usually the most challenging part of this pattern.

I expect to see volatile and choppy price activity until we get closer to the national nominating conventions for Republicans and Democrats. They both happen in the summer.

To that point, some short-term red flags are popping up in the market…

Many tech stocks are getting overheated. And some volatility is already occurring. Apple (AAPL), the world’s largest tech company, is down more than 12% from its mid-December high.

Meanwhile, the Chicago Board Options Exchange’s Volatility Index (“VIX”) has ticked up from 12 in December to 14 today. Even if that reading is still near historic lows, it indicates that investors are getting more worried as stocks keep soaring to new highs.

The price of gasoline is up about 10% since late January. That tells us inflation likely isn’t dead yet.

And as market sage Paul Macrae Montgomery famously coined, there’s the “magazine cover indicator” – which has historically served as a contrarian indicator for stocks.

Keep in mind that this week’s edition of Barron’s magazine featured a set of bull horns.

All of these short-term red flags are enough to make some investors want to bury their heads in the sand. But as investors, we need to stay focused on the big picture and the long term.

Federal Reserve Chair Jerome Powell said last week that the central bank wants to make sure inflation is under control before cutting interest rates. But notably, his comments also included a key phrase – “and we’re not far from .”

To me, the comments about holding off on rate cuts mean that Powell sees the same strong economy as the stock market. And with things going as well as they are right now, he doesn’t see any need to cut rates yet.

But considering the “overheated” climate, it feels like we’re overdue for a bigger pullback in stocks. And the market tends to sell off when any economic data disappoints compared with expectations.

That doesn’t mean my long-term outlook is changing. It would be a buying opportunity.

In the end, everything still matches up with previous presidential-election years. I’m still “bullish” on stocks in 2024. And we shouldn’t panic when the long-awaited bigger sell-off happens.

Good investing,

Marc Chaikin

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