Oh my, I did it again! | Exchange places with Tom Bowley

By now, most of you know that I am a history student. 2023 progressed beautifully according to the historical roadmap. Here are a few things about 2023 that could be predicted for the S&P 500 simply by recognizing historical norms:

Q4 Industrial and Financial Sector Strengths

Industrials (XLI) and Financials (XLF) love the fourth quarter. I have pointed this out several times. During the long bull market since 2013, the financial sector has failed to outperform the overall market. Rather, the sector was nearly identical to the benchmark S&P 500. However, from September to December, there was a relatively good period of strength for XLF:

Here’s how XLF has performed relative to the S&P 500 since 2013:

• January to August: -3.1%
• September to December: +4.3%

Now check out the XLF:$SPX relative chart.

It was like clockwork.

Industrials (XLI) is no different, but its strength was evident in November. Below is the same 11-year relative seasonality chart since 2013. This time we use XLI.

Let’s break this down into two equal periods of the year.

• January to August: -1.4%
• September to December: +2.6%

Here’s the chart:

It took a little while to kick in, but the November/December explosion fit perfectly into the seasonal sweet spot for industrials.

Most optimistic period of the year from October 28 to January 18

I don’t know if you’ve seen it, but the edit below is what was printed on October 27th. As soon as the markets opened on October 28th, the S&P 500 soared and never looked back. Check out this chart:

What changed from October 27th to 28th? Really, has anything changed other than a day changing on the calendar? I’ve said in the past that going from a late-October downtrend to a November uptrend is like flipping a switch or simply turning cold water into hot water. History has confirmed it once again.

The strongest period from October 28 to January 18 of all time for the S&P 500 (well, since 1950) was 1962-1963, when the S&P 500 rose 19.51%. The second-best performance since 1950 was 1998-1999, when the S&P 500 gained 16.70% during this strong period. Third best? Well, now it’s 2023-2024. The S&P 500 is currently up 15.85% since the close on October 27th. If the S&P 500 closes above 4921 on January 18th, it will be the biggest gain from October 28th to January 18th since 1950.

Now you are probably thinking that the strong boom from October to January is likely to lead to a lot of selling after this period ends. Yes? I mean, gosh, we should be as massively overbought as we are right now, right? If you aren’t already, you may want to sit down.

Look at this.

Since 1950, 19 out of 20 of the TOP 20 BEST from October 28 to January 18 ended the following year higher. Produced 13 out of 20 years. Double-digit rise! And during the strong period from Oct. 28 to Jan. 18, when it rose more than 8%, only one year saw a double-digit decline. In 2000, the S&P 500 fell 10.14%. So I ask. Where is the risk now? Are people sitting around waiting for a downturn, or worse, a bear market? Or does it apply to people buying at current prices?

If you think this optimism is unsustainable or that chasing this rally doesn’t make sense, history suggests otherwise. But ultimately, the phone is yours.

Since I’ve discussed the most bullish periods of the year, I’d like to mention that the weakest period is from the July 17th close to the September 26th close. Browse the S&P 500 and see the 2023 correction. When did it happen? Yes, it started in mid to late July and continued through September and into October.

History has nailed 2023 in many ways.

S&P 500 2023 Performance

Shall we take a trip down memory lane? Here’s how the S&P 500 ranked on December 31, 2022, one year ago today.

remember? It was ugly. Do you remember how many analysts said we would go down? How optimistic were you at the time? Can you use five fingers with one hand? I can not do it. I felt like I was alone on an island of optimism. But I don’t really care. I don’t need other people to agree with me. I don’t try to follow the crowd. Instead, I completely ignore the crowd and follow the charts and signals. And I always keep perspective. This allows me to take a step back and make unbiased decisions based on the facts and the risks at hand. Most of them are not based on the opinions of media “experts” who do very little research to support their claims. Do you remember what everyone said? Here is a partial list…

• Don’t fight the Fed
• Now a rate cut is coming (contradiction is okay on Wall Street, obviously we shouldn’t invest when the Fed is raising or cutting rates).
• I’m leaving in May
• Width too narrow
• Now the breadth is too extreme (also contradictory – both the lag width and the extreme breadth are bearish).
• There is only the Magnificent 7
• runaway inflation
• politics
• government debt
• consumer debt
• negative emanation
• Breaking the trend line
• Sentiment of optimism (I like this one too, because in my opinion it has remained incredibly bearish until November 2023)
• And blah blah blah, blah blah

Where did I stand? Well, I put my reputation on the line at the beginning of each year by making a solid prediction for the S&P 500. Saturday, January 7, 2023 In MarketVision 2023, I argued that the S&P 500 would rise to 4700. 2023 will likely test the S&P 500’s all-time high near 4800 and end with a 23% gain. Many people laughed and thought I was crazy. The S&P 500 is actually up 24%, and I’m down 1%. It’s my fault. A year later, the S&P 500 ended the year at 4769 and tested its all-time high resistance at 4800 last week. I don’t care if you call me crazy.

We are preparing for an encore.

But first, please do me a favor. Actually, there are two favors.

#1 – Ignore all the common perma-bear and perma-bull biases and follow me at EarningsBeats.com. I will tell you this directly based on the signals I see and the risks inherent in the market (bearish or bullish). The best way to get in touch with my style is to sign up for the free EB Digest newsletter. This is a 3 times a week newsletter that is very simple to read. It consists of two paragraphs and a chart, three times per week. And did I mention it’s completely free? Click here to register with your name and email address. You can cancel your subscription at any time.

#2 – Join me this Saturday, January 6th for “MarketVision 2024: Beyond The Fed.” This is a live virtual conference that all starts at 9:30 AM ET and lasts approximately 5 hours. Joining me will be Grayson Roze, Director of Operations at StockCharts.com. You can learn more about this event and register here. It will be recorded, so you can listen to the event live or via recording at your leisure. If you want to fully understand how to follow signals and ignore CNBC, MarketVision 2024 is where you want to be.

Start making your 2024 resolutions now at EarningsBeats.com. You won’t regret it.

I’ve been providing unparalleled market guidance and S&P 500 forecasts for the past four years, and they’ve been uncannyingly accurate. I’m putting my reputation on the line again this Saturday. I hope you join me!

I wish you all health, happiness, and financial prosperity!

Happy New Year and happy trading!

tom