Ready to Jump on the Santa Claus Market Rally?

Is this the perfect time to let go of conservative investing and ride this late-year rally to new market heights?

A lot of stock market advisors seem to think the coast is clear and it’s not a parade to nowhere. As this chart from Google Finance shows, this rally is already strong. The key the S&P 500 (SPX) was up over 8% in November. See the 2024 forecasts down toward the bottom.

FOMO investors are worried they’ve already lost the opportunity but many stocks should make big gains. Experts are saying 10% growth for 2024 for the S&P, but we’d have forecast higher than 5,000. In fact, it could conceivably reach 5000 this year. You can see the surge of strength in this late year rally.

However, it’s likely the Powell and crew will try douse the party with plenty of cold water to encourage a path to consistently lower inflation. And the markets and best stocks to buy are driven by the FED rate. And the economic signals are weakening which is good news to the FED.

Sure the economy will slow in the 3 month to 6 month term, but that is exactly what’s needed to set the stage for a massive stock market price surge in 2024/2025.

“Among the leading indicators, deteriorating consumers’ expectations for business conditions, lower ISM® Index of New Orders, falling equities, and tighter credit conditions drove the index’s most recent decline.” — Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.

Whatever drives demand and costs down is the source of delight for the mid to large-cap companies, and the FED too.

“Breadth is finally starting to broaden out to levels more commensurate with bull markets,” said Adam Turnquist, chief technical strategist at LPL Financial. “This has been one of the keys to calling this recovery sustainable.” — Reuters news report.

Will Fear of Missing Out Also Boost the Stock Markets?

FOMO investors are afraid of losing out and if they start moving all that money from the money markets ($4 to $6 Trillion estimated) then stock prices could rocket. It’s definitely time to own something. You may find the best stocks to buy today, or next week are a basket of large caps, but for those who demand more, the Russell 2000 small caps are likely where you’ll get rich.

“This environment where rates are cooling, inflation is moderating and the Fed is on the sidelines, that is typically a good backdrop for risk assets. Typically when rates start to move lower, you get valuation expansion and the areas that we could see some more meaningful valuation expansion is outside of large-cap tech.” — Mona Mahajan, senior investment strategist at Edward Jones

The outlook for next week is positive, althrough it’s a toss up about the 3 month outlook. The 6 month forecast period outlook is looking much better right now.

How do investors like yourself feel these days? The mood is up 6% in the last month and keeps on going. We’ll likely hit the high for 2023 during Xmas week before the New Year. And that’s when the Santa Claus Rally happens. Right now, it’s a late year rally and it’s a good one.

The Bull market signals are strong enough that Investors.com has posted its best stocks to buy list and they mention these stocks are flashing buy signals:

Arm Holdings (ARM), United Rentals (URI), D.R. Horton (DHI), TopBuild (BLD), InterContinental Hotels (IHG), Marriott Worldwide (MAR) and Palantir Technologies (PLTR).

AI technology, homebuilders and travel companies are the best stocks to buy. I certainly like DR Horton for the next few years. The demand for housing is intense with resale properties unable to be sold with severe shortages (costs, interest rates, materials shortages, lack of government support). As mortgage rates fall, hungry, impatient buyers will jump on new homes available on the market.

Positive Signals for the Markets

• inflation rates easing
• FED rate easing
• soft landing talk growing
• unemployment rising
• very warm winter ahead with oil glut and low gasoline prices
• the S&P 500 200 moving day average is strongly up (9 sessions)
• bullish investor sentiment is 43.8% above the historical average of 37.5% for the fourth time in 14 weeks
• market is broadening (stocks other than the megacaps)
• risk on environment means money will move out of mega caps to small caps
• the Dow and the Russell indexes are rising fastest (industry/small business outlooks)

Of course, there is euphoria here and some advisors are cautioning investors not to get carried away. With the indexes reaching yearly highs soon, the jitters might seize the marketplace. Tom Lee of Fundstrat mentioned that 2024 is likely to be choppy territory. Certainly P/E ratios show are overpriced. However, investors do know the next 3 months are an incredible opportunity to ride some growth for the next 5 years. As rates fall over 3 to 5 years, and as the US is repatriating so many industries, the outlook is excellent.

Certainly, the 7 million new illegal immigrants will need everything from housing and furniture to cars and clothing.

If the GOP can block out of control spending in January/February, the fate of interest rates is sealed. Because it is government spending that is main source of inflation. Controlling that one variable will send inflation plummeting. Keep up on the battle between Biden and the GOP in the next few months.

What is the Outlook for the Next 3 Months?

The next 3 months (December, January and February) should be strong. They were last year despite a miserable economic situation. With inflation eroding, but rates staying firm, it’s a stalemate, and creates a 3 month period where you can dump your money market holdings into the equities market and enjoy solid returns over the next few years.

Of course,, picking the best stocks over the next few months won’t be easy, From Bitcoin, to Nvidia and Microsoft and Tesla, volatility will be a factor.

Still, the forecast is for a positive 2024 year for the stock market. and 2025 should be very good as the FED rate will be well down then. Stocks remember are an evaluation of future value and as rates decline, US stocks will really roll along. See more on the 3 month, 6 month, 5 year and 10 year stock market outlook.

Top Performing Market Sectors (TradingView Graph)

See which market sectors might be winners for the next year. Communications, energy and utililites are paying the highest dividends.

The November 2024 election is only 13 months away.  It’s hard to ignore this growing factor for the stock market outlook.  If President Trump is re-elected, taxes and spending would drop and the FED rates forced downward. He would focus on American business’s well being too.  In all, this would look very good to most investors.

Both sides will be feeling optimism about the election outcome, however the D’s might not be as confident, after President B had an abysmal year that just keeps on coming.

In my last forecast last August, I said October would be the bottom and it turned out to be that bottom. Is time running out for investors, or is the best time to acquire the best stocks available, with more certainty?

So for the next 3 month to 6 month forecast period, investors are still looking at opportunities to buy before the big surge.  October might be the bottom, yet November could be even lower.  However, if politics follows its current course, 2024 and 2025 should be great years. Still, a new President is required to build back America’s economy and business strength.  A pro business government is the right choice.

When Will all that Money Market Money move over to Equities?

Markets have suffered low volume and disinterest for sometime, yet $5 to 6 Trillion in money markets is one reason to hang in there with your best picks.  Not all of that money will move, but a good chunk of it will by end of 2024.  If Biden wins, then money will retreat to the money markets.

Year to date, NASDAQ and the S&P 500 have persevered well. As interest rates ease, the NASDAQ was positioned best for growth, which means US tech stocks might be the best bargains. Here are your top-performing tech stocks of late on the NASDAQ exchange. With the coming growth of AI, Nvidia has caught the eye of investors.

Here are your high flyers from the last month. As you can see, some smart investors picked the right stocks and made a fortune.

Morgan Stanley pointed out in their Stock Market Outlook 2023 report, the stock market does very well in non-election years (+71%), and not badly in Presidential election years (40)%).

6 Month Stock Outlook

By April of 2024, we might be through most of the bad news and economic crisis. The economist’s dour predictions of a 2024 crash/downturn will be done. By then, the Dems will have to capitulate on spending to reduce inflation, and that will drive a massive upward shift in the DOW, S&P, NASDAQ and Russell 2000. See more on the 6 month S&P forecast.

If the FED rate drops and mortgage rates fall, it could stimulate the housing market which fires up everything. There is a crisis in the multifamily sector for overleveraged builders, but those that get through it will see their sales improve by next spring of 2024.

The 5 Year Stock Outlook

For the period 2024 to 2029, we’re looking at impressive growth. This is mostly fueled by lowering interest rates, expanded oil and gas production, bringing manufacturing back to the US, and government spending more in line with reality instead of ideology.  The US leadership in AI and microchip manufacturing is key since AI will increasing influence manufacturing, services and the financial sector. Perhaps even the AI stock market software tools will be useful then. See more on the 5 year market outlook.

Key Market Signals to Watch

Government Debt Crisis and Shutdown:  key driver of this current downdraft in stock prices. There will be damage as government credit rating and suppliers are affected after the shutdown. Lower spending means companies will review their risks and their decision to work with the US government going forward.

Lower Bond and Treasury Yields:  Right now the FED is sticking it to the equities market due to their desperate search for cash to pay out on debt liabilities. That’s drawn money into the bond market for comparatively weak ROI for investors who want a lot more than a few percent growth.  Only equities pay off big and create millionaires. Charles Schwab expects yields to fall in Q3 and into 2024 as inflation continues to cool.

Stock Markets Heading Down:  The last 3 months have been strong, but overall support for a strong Q4 is weakening, and Q1 2024 is looking cloudier with rain in the forecast.

Regional banks stocks: they’ve seen their stock prices fall strongly last week. The FED noted in its Loan Officer Survey that “Banks reported tighter standards and weaker demand for all commercial real estate loan categories.” Higher interest rates combined with tighter lending standards threaten to slow the economy which relies on credit.

New Inflation Data: New inflation data released today from the Bureau of Labor Statistics showed the (CPI) revealed headline inflation rose only 0.4% over last month and is up 4.9% year over year. Prices in March rose 0.1% vs February. Some are predicting a drop in the CPI which might cause the market to jump up after the announcement on Wednesday.

FED Pivot Timing:  The recent .25 rate hike should make some producers think twice about raising prices. Inflation is driven by monopolies, supply shortages, too much liquidity and demand, and the economic recovery.   The Central bankers says further hikes are unlikely beyond this most recent .25 final hike.

Rising Oil and Natural Gas Prices: OPEC looks stronger and there’s little action spoken about taking action on China and India for buying banned imports from Russia.  Biden’s regime is likely going to sit on anything that keeps oil, natural gas, and gasoline prices down and an SPR release is very likely given it’s Joe Biden’s only go-to tool.

Stengthening US Dollar: a stronger US dollar is not good for US manufacturers and exporters, but it can provide some relief for consumers who may enjoy lower import prices (if companies pass through the savings).

$6 Trillion Cash in Waiting When the Market Gives the Green Light

Investors still hoard a lot of cash, at record levels, and are still waiting for the stock market to really turnaround. During the past year, US investors holding cash were hit badly and few FX experts are calling for a resurgence in the greenback.  A strong persistent bull run should draw them back setting up a strong upswing in all indexes.

Money market funds are still swelled at $5.3 Trillion with inflows infusing another $599 Billion into the sector, according to a Bank of American report. However, the last time we saw huge inflows like that was back in 2008 after the Lehman Brothers collapse.

Market Forecasts for the Remainder of 2023

Morgan Stanley’s Mike Wilson was predicting double-digit percentage drops for stocks in early 2023. Other market prognosticators have called for recession in Q4 of 2023 or early 2024.  With the inflation staying up and the FED afraid to lower rates, this trend could lag on as experts noted today.

Reviewing guidance from investment companies and many insightful opinions is wise, and hopefully they’ll provide data and reasoning to back up their predictions, projections and outlooks.

Forecasts for the S&P

According to Goldman Sachs, the S&P 500 index is expected to rise to 4700 by the end of 2024, representing a price gain of about 5% and a total return of around 6%.

JPmorgan is getting all the ink right now with their black forecast of a 8% drop in 2024.

Yahoo Finance crafted this nice infographic on analysts S&P500 2024 predictions.

Dow Jones DJI Projections

Currently, for year to date, the Dow Jones is underperforming and Dow Jones stocks are barely up for the year. The economic slowdown, with the rapid rise in credit costs, has stunted manufacturing.

This chart from Barchart (one of the best investing websites to subscribe to) shows few Dow Stocks were thriving despite today’s great rise. However, there will still be a great buy the dip opportunity. Investors should review oil stocks since the price of oil is suppressed. Commodities and energy industry experts believe oil prices will rise — either through OPEC cuts or the depletion of the Special Petroleum Reserve.

What To Take Into Account for the Stock Market Forecast?

The next 3 months to 6 months look volatile, driven by these factors:

• rising Fed rates — likely one more hike of 25 basis points
• housing market getting hammered with refinancing nightmare, glut of new construction, and demand that keeps prices rising
• leveling unemployment and rising job claims
• wage demands still strong but real wages turning downward now in 2023
• persistent medium inflation above 3%
• US GDP looking good for 3rd quarter and not bad for 4th quarter 2023
• imports decreasing but are cheaper (unless tariffs)
• the U.S. manufacturing sector contracted in June and July but rocketed back in August to 48 (50 is average)
• Factset forecasts S&P EPS to grow .5% in 3rd quarter 2023, the first YoY growth since 3rd quarter 2022.

Is This the Bottom for the Stock Market?

Plenty of investing gurus are suggesting we’re in a buying opportunity, while some say we haven’t seen the bottom yet. The usual bears such as Michael Burry, Jeffery Gundlach, David Rosenburg gave gloomy outlooks, supported by the last Bank of America prediction as well.

Current Major Indexes (as of August 7, 2023)

S&P 500 : 4,478.00 ↑
Dow Jones: 35,065 ↑
NASDAQ : 13,909.00 ↑
Russell 2000 : 1,957.00 ↑
WTI Crude Oil : $81.90 per barrel ↓
Gold: $1940.30 per ounce ↓
US Dollar : $102.01 ↓

What Do the Economists Say about a Recession?

Ethan Harris, head of global economics research at Bank of America Corp. “We’re either going to have a weak economy or a recession.” — TBS News Report

Jamie Dimon of JP Morgan said there’s a 66% likelihood the U.S. is headed into a mild recession or something even worse.

“We put the odds that the economy will suffer a downturn beginning in the next 12 months at one in three with uncomfortable near-even odds of a recession in the next 24 months,” said Moody’s Analytics chief economist Mark Zandi said last May. — Washington Post.

Are Investors Not Realizing the Bear Market Has Left?

Lael Brainard, usually a more dovish policymaker, said she expected “a combination of rate increases and a rapid balance sheet runoff to bring U.S. monetary policy to a more neutral position later this year. Further tightening would follow as needed” — from CNBC report.  So far, pretty accurate.

Forecasts 3 Months to 5 Years to 10 Years

Getting a clear view of the economy in the next 3 months to 10 year framework takes a little study. You can view more on the immediate market situation, the 3 month outlook, 6 month outlook, 5 year outlook and 10 year outlook. A smart investor will make themselves very aware of each forecast period.  The current market view will disappear and like a slide show, move to the next period.

The five year to ten year outlook is steadier and it’s important to consider that politically, the intent is to bring industrial production back to the US. That single factor should help view the future more optimistically. Interest rates, mortgage rates and lending to small businesses should all improve.

Stock Market Crash Possibilities

The general mood is that we’re in for a soft landing and the economy will not collapse. That pretty well negates a crash, although some experts are still playing it safe. It’s not risk off for top fund and investment managers.

Here’s 7 Factors to Watch as Signals of a Downturn

• inflation persists or rises (wages, energy, consumer prices, rent)
• government insists on printing more money and spending more
• Interest rates rise (could go up further)
• disappointing earnings in Q4 (consumers pulling back spending fast)
• geopolitical conflict such as China/Russia strife (that will intensify)
• regional bank crashes (believed to be done, but some concerns remain)
• oil price shocks (yes, oil prices are rising fast with supply down)
• supply chain disruptions as manufacturing returns back from China

It won’t be a trade war, but a negotiation of foreign involvement in the US and how to avoid trade sanctions and tariffs.

What’s the Long Term Investment Outlook?

The 10 year stock market outlook is less certain of course, but consider that Millennials and Gen Z’s will slowly form more families and this is a massive number of people and a high spending phase of their lives. Additionally, millions of illegal immigrants flooding into the country in their 20’s to 40’s represents additional market demand. Demand drives prices and economic growth which fuels growth for many of the stocks above.

As interest rates and mortgage rates fall, the business community can enjoy a return to profitability while banks resume normal lending for credit, business and buying homes. The 2024 outlook for the stock market is wonderful!

Check out this list of Stock Trading Websites where you can launch your stock buying campaigns.

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