- A failed Santa Claus rally has ended the prospect of a “January Trifecta” for the stock market.
- But that doesn’t mean stocks can’t continue to rally like they did in 2023.
- Continued resilience in the US economy bodes well for positive stock market returns this year.
A six-day losing streak in the S&P 500 has ended the prospect of a “January Trifecta” in the stock market this year, but that doesn’t mean stocks won’t go higher in 2024.
The January Trifecta refers to three indicators flashing positive at the beginning of the year: stocks moving higher during the Santa Claus rally, the first five trading days of the year, and the entire month of January. When gains are recorded in all three time frames, history shows that what follows is a great year for the stock market.
The Santa Claus rally failed to generate a positive return, and it looks increasingly likely that the first five trading days of the year will also generate a negative return. So, the January Trifecta is completely off the table.
But the failed rallies at the start of the year ignore the fact that stocks have been on a tear since the end of October, so a period of consolidation and profit-taking was overdue, according to Carson Group chief investment strategist, Ryan Detrick.
“Yes, stocks just fell during one of the most bullish times of the year during the Santa Claus rally, but I think it is important to remember the S&P 500 was also up 9 weeks in a row going into this period. That was the longest weekly win streak since 2004, so something had to eventually give,” Detrick told Business Insider.
The recent rally in stocks suggests to Detrick that the market is due for a period of sideways consolidation over the next few weeks, if not through the entire first quarter of the year. That would line up with seasonality tied to the Presidential Cycle, which is now in its fourth year with the 2024 election right around the corner.
“It could mean January takes a pause. Maybe even the first quarter in general. We just had a historic jump in the last two months of 2023, so some type of break would be perfectly normal. Also, if you look at all 16 quarters of a four-year Presidential cycle, you’ll find that the first quarter of an election year tends to be one of the weakest,” Detrick explained.
It’s important to highlight that statistical studies of historical price action in the stock market, of which Detrick and many other Wall Street strategists utilize in their process, are not meant to be a prediction of what’s about to happen, but rather they offer a probability set to investors about what might happen.
There’s a bigger, more important aspect of the overall picture for the stock market, and that’s the economy, which is why Detrick is staying bullish on stocks this year despite the failed January Trifecta.
“I’m a fan of using history as a guide, but that is only part of the story. To us, knowing that the economy is on firm footing, earnings should hit a record this year, the consumer is still healthy, with manufacturing and housing both showing signs of recovering, those things matter more. If we can avoid a recession this year (our base case), it still makes sense to expect stocks to do well this year, probably gaining in the low double digits,” Detrick said.
The December jobs report once again beat economist estimates with 216,000 jobs added to the economy. That means 2.7 million jobs were created in 2023, and there have been 36 straight months of job gains. With the unemployment rate still hovering at a multi-decade low of 3.7%, the economy seems to be doing just fine, giving credence to Detrick’s optimistic take on 2024.
