Perfectly Normal Market Behavior

JC Parets
December 20, 2023

The old saying from our friend Jeff Hirsch goes, "Buy in October and Get yourself Sober".

Did you listen?

And it's not so much about literally buying blindly in October, and more about the fact that stocks tend to end their seasonal corrections around that time, before going on to rally into the end of the year.

And that's exactly what we've seen.

Here is the 4-year seasonal cycle, which of course, suggested strength in equities since mid-term elections last year. And we certainly saw it.

Then the Q3 correction came and went, again all perfectly normal.

And finally that year end strength, which of course we're seeing:

The market acting perfectly normal is not the signal.

There's nothing to really talk about when stocks are just following their seasonal tendencies.

It's when markets ignore their seasonal trends that we really want to pay attention.

See: Santa Claus Rally 2023

The stock market just doing what it historically does throughout the year is not a big deal at all.

If we start to see weakness during a seasonally strong time of the year, like late December and January, then we can talk about some deterioration underneath the surface.

But so far we haven't seen that at all.

Just perfectly normal market trends.

What's surprising is the lack of optimism, despite the historic bull market for stocks that we've seen this year.

This is a sentiment composite index which adds up a bunch of our favorite sentiment indicators.

Using just one indicator makes little sense, especially some of the more emotional and sensitive ones like AAII.

We've found it best to smooth them out.

Sentiment readings are currently just middling around. No extremes in either direction.

And again, this is surprising considering how well stocks have been doing.

To me, this points to further upside in equities before we start to see too much optimism.

Sentiment is currently NOT a headwind. If anything, you can argue that it's still a tailwind.

We discussed everything on Monday night and what we're doing about it.

Make sure to catch the replay and list of Trade Ideas here.

JC

 

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