The S&P 500 is surging in November, closing in on a beautiful +8.5% performance. Upward price shocks are normal after extreme oversold readings, states Lucas Downey of Mapsignals.com.
Pundits will tell you to cash out now, but in my view, that’s a mistake. Savvy investors are positioning for the Monumental Money Shift of 2024. Worrisome bears keep fighting the tape. It’s painful to watch. Popular here-and-now analysis paints a cautious outlook including sticky inflation, high interest rates, and peak housing unaffordability. Just don’t buy into it.
On Wall Street, money is rarely made focusing on today. Instead, seasoned investors know to look towards the future…placing bets on what’s coming. Today I’ll make the case for even more gains ahead for stocks. When you review the setup unemotionally, four massive tailwinds signal a big upside for next year.
Positioning for The Monumental Money Shift of 2024
A couple of weeks ago, we made the non-consensus call that the market lows were in. Falling interest rates, stable inflation, and re-accelerating earnings growth laid a macro foundation for higher equity prices. Talk about a heck of a call! With November posting one of the best monthly S&P 500 performances in years, we aren’t abandoning that positive outlook.
The first major tailwind for stocks gaining near-term is the seasonal December tailwind. Positive momentum thrusts are common at yearend. Since 1990, November boasts average gains of 2.1% (including 2023). That momentum spills over into December with typical gains of +1.3%:
This near-term technical catalyst suggests there’s more gas left in the tank. But let’s now zoom out a bit on the medium-term setup. Devout bears love to discuss the havoc that elevated interest rates have put on consumers and companies.
I get it. After the Fed hiked Fed Funds interest rates at a record pace to 5.5%, it’s a growling argument to make. That is until you consider that interest rates are set to decline in a big way in 2024. The second major tailwind for stocks is we are about to enter a declining interest rate regime. Turns out, rampant inflation was indeed transitory. According to the CME Fed Watch tool, investors are betting that the Fed will start easing interest rates as early as May. Even better, expectations now point to a shaving of 1.25% off the Fed Funds rate by December:
If rising rates cause pain, it’s only logical to expect relief when rates back up. But we can’t stop here! The next two reasons to stay committed to stocks have to do with my favorite market dynamic—positioning. Nothing has a larger influence on market prices than money flows. As interest rates surged, market participants flocked to safe Money Market funds for their risk-free +5% payouts.
Given rates are set to decline rapidly next year, those attractive yields will suddenly become less appealing…thus positioning for the Monumental Money Shift of 2024. Reason number three to keep betting on equities comes down to the nearly six Trillion dollars camping out on the money market sidelines. Focus on today and you’ll miss what’s coming. Money market outflows will eventually make their way into stocks.
Below are the latest inflows to MM funds:
That’s a crowded trade right there! It doesn’t take a huge leap of faith to believe that trend is set to reverse. Now, it’s time to drive this money-shift narrative home. At MAPsignals, we have the advantage of measuring real-time equity positioning. Mega equity inflows have already begun.
The fourth and final reason stocks have a major tailwind is due to the Big Money Index (BMI) telling us the risk-on nature happening right now. The latest crowd-stunning rally is backed by a wave of accumulation. At the market lows, we were pounding the table to buy stocks. When two rare bear-killer signals emerge, prepare for a face-melter. That’s exactly what’s transpired.
Look how prescient our oversold BMI was back at the market lows in late October (white circle). This proprietary indicator greenlighted when the crowd was peak fearful. This approach highlights why focusing on the here and now is rarely a profitable adventure. Focus on where we’re going—UP UP and AWAY:
Ladies and gentlemen, if you’re not positioning for the Monumental Money Shift of 2024, I humbly suggest you reconsider. The evidence is overwhelming that better days are ahead. Let’s wrap up.
Here’s the Bottom Line: I believe 2024 can be a watershed moment for stocks. Yearend seasonal strength, coupled with falling interest rates, alongside record money market positioning, and a raging BMI mean one thing…
For stock pickers, this is a tremendous opportunity. From my vantage point, the shift has already started. Money is chasing high-quality stocks.
To learn more about Lucas Downey, visit Mapsignals.com.