Here we are, in the final stretch of 2024. And with both the US election and the Federal Reserve’s interest rate decisions (mostly) behind us, we should now be able to finish the year on a positive note. Historically, we are now in the best 3 months for the stock market: November, December, and January. And as I showed last month, seasonality around elections tends to see a positive market run for 30 days post-election, no matter which side wins.
While it is too early to tell how new government policy will affect the US stock market, having the uncertainty behind is us generally a positive factor. The market tends to struggle over the unknown much more than the known. Had the election results dragged on for days or weeks, we would have likely seen much more volatility than we did.
The one aspect that has me most baffled is how much the broad bond market indexes have struggled since the Federal Reserve started to lower rates. Typically, bonds values rise when rates fall. But that isn’t what we’re seeing in the Aggregate Bond Index or in the US Treasury markets. Super weird.
In contrast, there are economically sensitive bond markets (think Floating Rate, High Yield, Preferreds, etc.) that are holding up much better than these broad indexes. So there are still good opportunities out there in bonds, you just need to know where to look.
To better illustrate the difference in bond markets over the past year (which is really a comparison of interest rate sensitive and economically sensitive markets), here are four examples using the RGB Indexes (available in Investor’s FastTrack).
Green is the RGB01 US Treasury Index, Magenta is the RGB02 Corporate Bond Index (both Interest Rate sensitive) compared to the Red RGB03 Floating Rate Index and the Yellow RGB10 Preferred Securities Index (both economically sensitive).
Chart of various RGB Bond Indexes. (Source: FastTrack.net)
Our Shadowridge Long-Term Trend indicator is still holding onto its positive reading, but had gone negative for much of the 3rd week of November.
Our Mid-Term Cycle indicator similarly went negative on November 14th but returned to positive a few days later. Our metric has even pushed more positive than usual, suggesting there might be more of a rally going into December.
As of Wednesday night (November 27th, 2024), our Shadowridge Dashboard showed Positive to Negative market sectors as 10 to 1. The one negative sector is Technology, which has been the leader through most of this year. This could be time for much of the rest of the market to play catch-up into year end.
All 10 RGB Bond Indexes are currently trending positive, above their 50-day Moving Averages. Economic-Sensitive bond sectors are holding up well against Interest-Rate-Sensitive bond sectors, but the latter is showing some recent improvement.
RGB Economic and Interest Rate Sensitive Bond sectors (Source: ShadowridgeData.com)
The Bond market, as I mentioned, is improving in the short term (meaning the last few days), but it still doesn’t look great for the year. One scenario we are considering is if interest rate sensitive bonds rally into year end. If that happens, then maybe we do see equity markets struggle. But based on current data, that just doesn’t seem likely.
Bottom Line: We have been leaning back into the stock market, especially when we see Seasonality and Trend agree. We’re in the strongest three months of the year now. If money flow agrees and is positive, we’ll continue to increase stock market exposure. Here’s hoping for a strong end to 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.