So much for February being the weak link in the Best Six Months. The bulls continued to stampede down Wall Street, logging the fourth straight monthly gain for the S&P 500. The market is likely to consolidate over the next several months as it digests these gains and the usual ramp up of election-year mudslinging. But we do not expect any major correction, writes Jeff Hirsch, editor of The Stock Trader’s Almanac.

When the S&P 500 is up November, December, January, and February in a row, the full calendar year has never been down, up 14 out of 14 times for an average gain of 21.2%. And the action over the next 10 and 12 months is just as strong. The following March in these years only had a few minor losses. This positive market action supports our continuing bullish outlook for 2024.

[Bulls on Parade Table]


As for my analysis of market influences...

Seasonal: Bullish. Usually a solid-performing market month, March is the fifth best month of the year for DJIA and S&P 500 since 1950, averaging gains of 1% and 1.1% respectively. Steep losses in 1980 and 2020 dampen performance in election years. Election-year March ranks #7 for DJIA and S&P 500, #11 for NASDAQ, and #12 for Russell 2000.

Fundamental: Fair? The Q4 GDP estimate came in at a solid 3.2%. Although revised down from 3.3%, there was an upward revision to consumer spending. Based upon GDP, growth appears to be in the comfort zone, neither too fast nor too slow. Headline and core Personal Consumption Expenditures (PCE) have ticked lower but remain stubbornly above the Fed’s stated 2% inflation target. Corporate earnings have been fair, but future estimates are being trimmed, which is stretching some valuations.

Technical: Stretched? Four straight months of gains with DJIA, S&P 500, and NASDAQ hitting new all-time closing highs have pushed technical indicators into or near overbought readings. With earnings season largely over, the market appears poised for some consolation of recent gains and a reset of technical indicators.

Monetary: 5.25 – 5.50%. Expectations have somewhat adjusted to the likelihood that the Fed will not be aggressively cutting rates this year but may need to adjust further yet. The Fed has historically only been aggressive with action in response to a crisis. Absent a crisis, rate increases and cuts have been data dependent and methodical. Based upon the Fed’s track record and inflation’s recent stubbornness, even a June rate cut appears overly optimistic now. 

Sentiment: Cautious. According to the Investor’s Intelligence Advisors Sentiment survey, Bullish advisors recently stood at 57.6%. Correction advisors were at 25.7% while Bearish advisors numbered 16.7% as of their Feb. 28 release. Bullish sentiment remains near levels that have historically been associated with periods where caution was prudent.

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