Usually, this time of year is much more volatile than what we’ve seen so far. And quite often September and October are the months that have the biggest market drawdowns or biggest sell-offs in any given year. But this year? Nope, this fall has been surprisingly quiet.
While we fortunately didn’t have any major sell-offs, we’ve also not seen the major indexes make much upward progress, either. Both the S&P 500 (SPY ETF) and the NASDAQ100 (QQQ ETF) are only up a little over 2% since the beginning of September (the start of this typically volatile period). We do still have an election that could cause some concerns, of course, but at the moment the stock market doesn’t seem to care much about the potential outcome.
In my October monthly webinar segment on the current status of money flow and seasonality, I shared this chart showing how the market tends to drift lower into election day (purple line), 12 days before Election Day (starting around the 22nd of October) – looking at the average movement of the S&P 500 Index over the past 3 major US Elections (Source: Seasonax). But as I mentioned, this has not been a typical year.
The other surprising thing happening now is how the bond market has been falling, fairly steadily since the Federal Reserve cut interest rates by 0.50% on September 16th (noted by the red arrow in the chart below). The chart shows the Aggregate Bond Index (AGG ETF) and how it peaked right around that time after finally making some progress since it bottomed in late April of this year.
Chart of the Aggregate Bond Index (AGG ETF). Source: Optuma
Our Shadowridge Long-Term Trend indicator is still holding onto its positive reading, which has lasted since late spring of this year. It has had its ups and downs, but this trend metric does remain up for now.
Our Mid-Term Cycle went negative on October 21st after turning positive for only one day before reversing back to negative. And still the sell-offs have been met with buying. That is, until Wednesday when the recovery wasn’t as strong as the past several days.
As of Wednesday night (October 23rd, 2024), our Shadowridge Dashboard showed Positive to Negative market sectors as 8 to 3. The current weak sectors are: Energy, Healthcare, and Consumer Discretionary. Many of the sectors still on the positive side are showing some possible early warnings signs they may shift to negative in the near future. This agrees with the Election Seasonality I mentioned above. We could see the market pull back a bit into the election from here.
Only 3 RGB Bond Indices are currently trending positive, above their 50-day Moving Averages. Economic-Sensitive bond sectors remain strong against Interest-Rate-Sensitive bond sectors.
This month’s chart comes from the @JayKaepplel Twitter/X account. It shows how the stock market acts under different political party leadership with the header comment: “A gentle reminder that the stock market doesn’t care about your politics.” Jay’s comment on this was better than anything I could say:
“The worst strategies are: “I like the administration, thus I think the economy will be great, thus I’m bullish!” Even worse: “I hate the administration, thus I think the economy will tank, thus I’m bearish!” The market DOES NOT care what you think – about anything.”
Source: X.com/Brew Markets
The Bond market, as I mentioned above, just can’t seem to get itself heading in the right direction. For nearly 3 years now, this “diversifier” has done little to help investors stay out of trouble or even mitigate much portfolio risk. The Aggregate Bond Index (AGG ETF) is currently averaging -1.97% annually over the past 3 years as of today (Oct 23, 2024). And that is an important factor to note since this index is frequently included in investments like Target Date funds and Balanced Funds favored in 401(k)s. Be careful with those.
Bottom Line: We’ve stayed somewhat moderate in our stance over the past few months, largely for Seasonality reasons. And while we’ve lagged a bit because of it, it hasn’t been by that much. Now that the market is drifting lower into the election, we’d expect to make up some ground here. And if there is a post-election market rally, like we saw in the past 3 major US election cycles, then we’ll be prepared to get very aggressive through year-end 2024.
Stay safe out there!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.