December: Bulls and Bears

At SPG, we pride ourselves on our data-driven approach, utilizing sophisticated analysis that encompasses 57 technical, fundamental, and economic factors to provide a well-rounded assessment of the market’s current state. Our dynamic methodology helps us to establish our market outlook as either bullish or bearish, aiding in our process to make strategic portfolio decisions and tactical allocation adjustments.

Every month, our team diligently analyzes these technical, fundamental, and economic factors, meticulously scoring each one as either bullish or bearish. We then consolidate the scores to form a hypothesis on the current mood of the markets. This thorough process allows us to gain valuable insights into the prevailing sentiment and helps us make better informed decisions to navigate the dynamic financial landscape.

As of November 26th, our market cycle assessment stood at 77.2% bullishness and 22.8% bearishness, with 44 bullish factors and 13 bearish factors. Early in the month, markets found reassurance in quicker-than-expected presidential election results and a 25-basis point rate cut from the Federal Reserve. On November 11th, the S&P 500 closed above the 6,000 level for the first time in history, a remarkable milestone achieved just nine months after crossing 5,000 in February.

October’s inflation data came in largely as expected, avoiding any surprises that could have derailed stock gains. Additionally, Q3 earnings season concluded with results largely aligning with forecasts, highlighted by Nvidia’s standout performance, which is often regarded as a bellwether for technology demand.

Participation in the Rally 

Market participation in November’s rally has expanded, with broader asset classes, industries, and sectors benefiting from the rising tide. This increased participation, particularly in small-caps, underpins the rally’s strength.

Corporate Earnings

Over the last month, projections for Q4 2024 and forward-year corporate earnings have improved. This is a fundamental factor supporting the case for a continued rally in the markets.

Distribution Days

Distribution days, a measure of institutional selling volume, have improved significantly over the past month. In October, this indicator was mixed, but it has now shifted to a fully bullish stance.

S&P 500 Charting

The S&P 500, as represented by the ticker SPY, has turned more bullish technically throughout the month. Notably, point-and-figure charting highlights strengthening upward momentum.

Bond Bullishness

Technical indicators in our model signal improvement for the Barclays Aggregate Bond Index compared to a month ago. This bond bullishness represents a bearish signal for equities.

Mean Reversion Indicators

The Hurst ratio, a key indicator of mean reversion, signals a level of bearishness for the S&P 500 and the Dow Jones Industrial Average compared to a month ago.

Arms Index

The Arms Index, also known as the Short-Term Trading Index (TRIN), has remained bearish throughout November. This indicator suggests a higher degree of declining stock pressure relative to advancing stock activity.

Summary

The key question looking forward is whether the current rally still has momentum. Will December deliver a classic Santa Claus rally, or has it already occurred? Conversely, could the market be in for a “bag of coal” instead? The December Federal Reserve meeting looms as the most significant catalyst for next month’s market direction. Investors will be closely watching for another potential 25 basis point rate cut and for any adjustments to the Fed’s medium-term projections.

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Past performance does not guarantee future results. All investing comes with risk, including risk of loss. No investment strategy can guarantee a profit or protect against loss in periods of declining values.