Why The Bull Market Of 2024 Is Just Getting Started
After a spectacular 2023, stocks are off to the races again in 2024.
YTD, the Dow is up 2.72%, the S&P is up 7.28%, and the Nasdaq is up 6.41%. (And that’s on top of last year’s 13.7%, 24.2%, and 43.4% respectively.)
And the outlook is for another fantastic year.
For one, the 4-year Presidential cycle shows that year 4 (that’s this year), is the second-best year of all four years (second only to year 3 (last year), which is the best year of all four years).
Moreover, after another better-than-expected earnings season, sales and earnings estimates for the S&P 500 paint a picture of growth with Q1’24 expected to show earnings up 2.2% and sales up 3.5%; Q2’24 expected to show earnings up 8.6% and sales up 4.5%; and Q3’24 expected to show earnings up 6.9% and sales up 4.9%.
Add in that inflation is on the decline (even though the pace of easing has slowed), with interest rate cuts likely just a few months away, and it looks like this year should be another solid year for the market.
But there are even more compelling reasons why stocks are set to soar.
Statistical Trends
The Dow, in mid-December of last year, was the first of the major indexes to eclipse their all-time high from January 2022.
The Nasdaq-100 followed suit a week later, eclipsing their previous all-time high from November 2021.
And the S&P, after waiting 24 long months of trading below their all-time high, finally passed that milestone in January. And they passed a new milestone just last month after closing above 5,000 for the first time ever!
Interestingly, history shows in the previous 14 times when the S&P has gone at least a full year without a new high, and then finally made one – a year later it was higher in 13 out of those 14 times, and up nearly 15% on average.
Another interesting statistic, which points back to the big gains we saw in November of last year, bodes well for more gains to follow.
Once again, history shows that when the S&P was up by more than 8% in a single month (November was up by 8.91%), (this has happened 30 times since 1950), a year later the index was higher in 27 out of those 30 times (that’s 90% of the time), with an average return of 15.8%.
Pretty compelling stats.
Bull Markets
As you know, all of the major indexes are in a bull market.
This is important to know because the stats of what happens after a bull market begins are worth pointing out.
In a study of the top 10 bear markets (using the Dow), the rallies that followed have been spectacular. Within a year after a bear market, stocks surge on average of 44.7%. And go on to gain an average of 66.3% by year 3.
And following the biggest bear market in that study (10/2007-3/2009 during the housing/financial crisis, aka the Great Recession), the market gained 63.4% in year 1; 100.6% by year 3; and 153.6% by year 5.
Those are portfolio transforming moves.
And the Dow is currently only 16 months into the official start of their bull market, while the Nasdaq and the S&P are only in months 10 and 9 respectively.
Peak Inflation Is Behind Us
Last week’s Consumer Price Index (CPI), and Producer Price Index (PPI) inflation reports confirm that inflation is on the decline.
The core (ex-food & energy) CPI (retail inflation) is currently at 3.8% y/y. That’s down from last year’s summer high of 6.6%.
The core PPI (wholesale inflation) is at 2.0% y/y, also down from last year’s summer peak of 8.2%.
And the latest Personal Consumption Expenditures (PCE) index (the Fed’s preferred inflation gauge), showed inflation at 2.8% y/y, down from last year’s peak of 5.3%.
While it’s true, the recent CPI and PPI reports showed inflation falling a little bit less than expected, it’s not likely to alter the Fed’s thinking on rate cuts.
Those sentiments were echoed last month by Austan Goolsbee, the President and CEO of the Federal Reserve Bank of Chicago, when he said what many in the market were already thinking, which is, “let’s not get amped up on one month of CPI that was higher than it was expected to be.” He continued by saying, “if you see inflation up a little bit, that doesn’t mean that we’re not on the target to get to 2%. We can still be on the path even if we have some increase and some ups and downs — so let’s not get too flipped out.”
The Fed’s latest forecast is for core PCE to fall to 2.4% in 2024, and 2.1% in 2025.
With inflation on the decline, Fed Chair, Jerome Powell, said “it’s not likely we will hike again.”
And with that, they forecast they will cut rates 3 times this year (presumably by 25 basis points each for a total of 75 basis points), which is 1 more rate cut than their previous estimate.
With interest rates at a midpoint of 5.38%, it’s already 258 basis points above core PCE inflation levels of 2.8% y/y.
If one were to assume that 100 basis points above inflation is the natural rate (aka the neutral rate), to allow growth, but keep inflation steady, then bringing rates down to 3.80% is where things should be now (which is -158 basis points below current levels). That suggests far more than the 2-3 quarter-point rate cuts the Fed is forecasting. And shows the Fed has plenty of room to cut rates while also keeping monetary policy restrictive enough to bring down inflation ever further.
While nobody is expecting the Fed to cut rates when they next meet on March 19-20, many are expecting the Fed to begin cutting rates as early as May or June.
Either way, interest rates ceasing to go higher, and beginning to go lower this year, is bullish for the market.
The Outlook Is For Growth
At the same time, the Fed sees growth for both 2024 and 2025.
And the latest forecast for Q1’24 GDP, per the Federal Reserve Bank of Atlanta, via their GDP Now forecast, is estimating GDP to come in at 2.2%.
That comes on the heels of Q4’23 GDP of 3.3%; Q3’s blistering 4.9%; Q2’s 2.1%; and Q1’s 2.0%.
For those still talking about a recession, it’s hard to make a case for that (defined as 2 quarters in a row of negative GDP), when the economy is expanding.
It’s also worth noting that personal incomes are hovering near all-time highs. And consumer spending remains strong. Important points when you consider that 70% of our GDP is driven by consumer spending.
And with the jobs market still so tight, that continues to underpin the economy. And why the outlook is for growth.
Stocks Are Undervalued
Let’s also not forget that valuations are down.
While the P/E ratio for the S&P has risen from their lows, they are still down sharply from 2021’s peak, and are below where they were the last time stocks were anywhere near this level.
And that makes stocks a bargain.
Do What Works
So how do you fully take advantage of the market right now?
By implementing tried and true methods that work to find the best stocks.
For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 29 of the last 35 years (an 82% win ratio) with an average annual return of more than 24% per year? That’s more than 2 x the S&P, including 4 bear markets and 4 recessions. And consistently beating the market year after year can add up to a lot more than just two times the returns.
Did you also know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There’s a reason why they say that half of a stock’s price movement can be attributed to the group that it’s in. Because it’s true!
Those two things will give any investor a huge probability of success and put you well on your way to beating the market.
But you’re not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once.
So, the next step is to get that list down to the best 5-10 stocks that you can buy.
Proven Profitable Strategies
Picking the best stocks is a lot easier when there’s a proven, profitable method to do it.
And by concentrating on what has proven to work in the past, you’ll have a better idea as to what your probability of success will be now and in the future.
Of course, this won’t preclude you from ever having another losing trade. But if your stock picking strategy picks winners more often than losers, you can feel confident that your next trade will have a high probability of success.
Here are a few of my favorite strategies that have regularly crushed the market year after year.
New Highs: Studies have shown that stocks making new highs have a tendency of making even higher highs. And this strategy proves it. The alignment of positive price action and strong fundamentals creates all the necessary conditions to see these stocks soar to even greater heights. Over the last 24 years (2000 through 2023), using a 1-week rebalance, the average annual return has been 36.3% vs. the S&P’s 7.0%, which is 5.2 x the market.
Small-Cap Growth: Small-caps have historically outperformed the market time and time again. Often these are newer companies in the early part of their growth cycle, which is when they grow the fastest. This strategy combines the aggressive growth of small-caps with our special blend of growth and valuation metrics for explosive returns. Over the last 24 years (2000 through 2023), using a 1-week rebalance, the average annual return has been 44.9%, beating the market by 6.4 x the returns.
Filtered Zacks Rank 5: This strategy leverages the Zacks Rank #1 Strong Buys, and adds two time-tested filters to narrow the list of stocks down to five high probability picks each week. Over the last 24 years (2000 through 2023), using a 1-week rebalance, the average annual return has been 44.7%, which is 6.4 x the market.
The best part about these strategies (aside from the returns) is that all of the testing and hard work has already been done. There’s no guesswork involved. Just point and click and start getting into better stocks on your very next trade.
Where To Start
There’s a simple way to add a big performance advantage for your stock-picking success. It’s called the Zacks Method for Trading: Home Study Course.
With this fun, interactive online program, you can master the Zacks Rank in your own home and at your own pace. You don’t have to attend a single class or seminar.
Zacks Method for Trading covers the investment ideas I just shared and guides you to better trading step by step, plus so much more.
You’ll quickly see how to get the most out of the proven system that has more than doubled the market for over three decades. Discover what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market no matter where stock prices are headed.
You’ll get the formulas behind our top-performing strategies suited for a variety of different trading styles.
The best of these strategies produced gains up to +62.6% in 2023 while the S&P 500 gained +26.2%.¹
The course will also help you create and test your own stock-picking strategies.
Today is the perfect time to get in. I’m giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages unfold virtually every trading secret I’ve learned over the last 25 years to beat the market.
Please note: Copies of the book are limited and your opportunity to get one free ends midnight Saturday, March 16, unless we run out of books first. If you’re interested, I encourage you to check this out now.
Find out more about Zacks Method for Trading: Home Study Course >>
Thanks and good trading,
Kevin
Zacks Executive VP Kevin Matras is responsible for all of our trading and investing services. He developed many of our most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.
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