One Big Reason Why Stocks Are Heading Higher in 2024 Editor’s Note: InvestorPlace offices, including Customer Service, will closed tomorrow Friday, December 22, and next Monday, December 25, for the holidays. Likewise, the stock market will be closed on Monday. Have a wonderful holiday! Dear Reader, The Santa Claus rally is real this year.
A Santa Claus rally typically occurs around the Christmas holiday – and it’s one reason why December tends to be a strong month for the market.
Since December 1950, the S&P 500 and Dow have averaged gains of 1.4% and 1.5%, respectively. And in Decembers before election years (like the one we’re currently in), the S&P 500 and Dow average returns of 2.9% and 2.7%, respectively.
Although stocks pulled back in late trading yesterday – the S&P 500, Dow and NASDAQ fell more than 1% after opening higher – stocks bounced back firmly today.
So, this December is following historical precedent. The S&P 500 is up 4.3% and the Dow is up 4.7%, respectively, as I write this. That’s a nice change of pace from the pain investors experienced in December 2022, when the S&P 500 dropped 5.8%, the Dow slipped 4.1% and the NASDAQ plunged 8.7%.
Strength in the latter half of December is largely due to the positive economic data we received last week: a slowdown in inflation, strong November retail sales and a dovish Federal Reserve. (You can read my review of the latest economic reports here and my thoughts on the Fed here.)
Now, I know some folks are worried that this broader market strength won’t last. Another pandemic could disrupt the presidential election. A flare-up could happen in the multiple wars and skirmishes (e.g., Ukraine, the Middle East and potentially Venezuela) that the U.S. is involved in around the globe. The U.S. also has the lowest troop level (1.3 million) since World War II commenced back in 1941, so our leaders have to be careful what conflicts the U.S. gets involved in.
Fortunately, most leaders, except Hamas, realize that wars are futile. Even Russia now realizes that war can be problematic after losing 315,000 troops and much of its military readiness.
Now, Netflix, Inc. (NFLX), with help from former President Obama, recently made a movie, Leave the World Behind, about an apocalyptic event. Amazon Prime is making a movie about a U.S. civil war that will be released in 2024, just in time for the Presidential debates.
The reason I bring this up is because these movies are “clickbait”. Now that Google Analytics controls what consumers and businesses read, apocalyptic entertainment is becoming increasingly common.
But the reality is that these are all excuses and distractions. Unless there is a mushroom cloud from a nuclear event, the stock market is poised to soar!
There are five primary reasons why I think stocks are headed higher in the New Year – all of which I will cover in this evening’s Growth Investor Monthly Issue for December. But in today’s Market 360, I want to give you a sneak peek into one of those catalysts: falling Treasury yields.
Plus, we’ll take a look at a group of stocks that have outperformed in the lower yield environment. I’ll explain why I expect them to continue to outperform in the New Year… and how you can get the names of these stocks, too.
Dropping Treasury Yields Bring Holiday Cheer As I spoke about last week, the Fed left the federal funds rate unchanged at 5.25% – 5.50%. The central bank also revealed that the “dot plot” from all 19 Fed governors is expecting three rate cuts in 2024. Furthermore, three to four rate cuts are anticipated in 2025 until key interest rates hit 3.5% – 3.75%. So, in total, the Federal Reserve Open Market Committee (FOMC) dot plot revealed that six to seven key interest rate cuts are planned between 2024 and 2025.
Treasury yields plunged after the Fed’s outlook for key interest rate cuts in the New Year.
The 10-year Treasury yield peaked at 4.99% back on October 19 and was sitting around 4.25% prior to the Fed’s December meeting. Following the Fed statement and Fed Chair Jerome Powell’s comments, the 10-year Treasury yield dipped below 4.0% for the first time since late July. The 10-year Treasury yield now sits at about 3.85%.  Here’s why this is good for stocks…
Treasury yields signal investor confidence. When investors are worried about rising interest rates, the state of the economy or conflicts abroad, they tend to turn to bonds because those are considered “safe” investments. When investors are not worried, it's back to stocks.
Now that we have an accommodative Fed by our side and several rate cuts in the pipeline, investors are growing more confident and comfortable investing in the stock market. So, we can expect a lot of cash to flow in from the sidelines and drive stocks higher next year.
In other words, it’s stock-buying time!
How to Profit in the New Year One group of stocks that has exploded to the upside is my Growth Investor stocks. My Growth Investor stocks have surged 11.76% in the past month, beating the S&P 500 by 4.88%. This represents my Growth Investor stocks’ largest monthly gain since April 2020 and the biggest margin of S&P 500 outperformance since October 2022!
A major catalyst for the surge in my Growth Investor stocks is none other than the 10-year Treasury yield. And with Treasury yields likely to continue to fall in 2024, I am expecting a very strong start for my stocks in the New Year.
I should also add that January is supposed to be characterized by strong trading volume. So, if we could surge an average of 11.76% on light trading volume, then we could potentially surge 15% or more in January.
To help position my Growth Investor subscribers for the New Year, I am adding two fundamentally superior stocks in today’s Growth Investor Monthly Issue for January. I will also review the five factors set to send stocks soaring. In addition, I’ll reveal my latest Top Stocks lists.
Click here and become a member of Growth Investor today so you have access to my newest stock picks as soon as they’re published.
(Already a Growth Investor subscriber? Go here to log in to the members-only website.) |
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