As we move past the election results, markets have been trending upward, entering a seasonally strong period of the year. While many indices are reaching record highs, we’re not witnessing a sense of euphoria—though there is a noticeable increase in optimism. Below is a graph of the U.S. Investor Sentiment, a weekly survey that tracks how bullish investors are about the market’s future.
(Source: Y-Charts)
As of the latest reading, 48.33% of those surveyed are bullish on the market, which is above the long-term average of 37.71%. This average often serves as a contrarian indicator of future market direction. That said, a sustained reading above 50% typically signals investor euphoria. While current sentiment is elevated, the short-term outlook benefits from seasonal tailwinds as we approach the end of 2024.
S&P 500 Post Election Year Cycle
Looking ahead to 2025, we will enter the start of a new administration. Historically, the first year of a new administration tends to see more muted returns for the broader markets. However, over the past 5 and 10 cycles, the markets have generally experienced stronger performance.
In the chart below, the blue line represents the historical average performance of the S&P 500 during the first year of a new president’s term. The black line shows the performance over the last 5 cycles, while the grey line reflects the performance over the last 10 cycles.
(Source: All Start Charts)
While the blue line indicates an average return of about 8%, the last 5 cycles have seen returns close to 20%, and the last 10 have averaged around 17%. Although each administration and market year presents unique circumstances, recent years have generally been stronger for stocks.
S&P 500 after Back-to-Back 20%+ Years
Unless there’s a significant market shift in the next few weeks, the S&P 500 is on track to post back-to-back 20%+ calendar years. If these gains hold, it will mark the ninth time since 1950 that this has happened. Below is a chart showing the eight prior instances and the returns in the year that followed.
(Source: Carson Insights)
Intuition would make one believe that back-to-back years of such strength would be followed by weakness. Conversely, the market has been up 75% of the time with an average gain of 12.3%. While the sample size is not immense, it is still interesting to consider as we head into 2025.
Articles We’re Reading
Black Friday sales up 3.4% y/y, though brick-and-mortar sales up just 0.7% y/y (Reuters)
Trump demands BRICS nations reject any move away from the dollar or face 100% tariffs (Axios)
Elon Musk files in federal court to prevent OpenAI from converting to a for-profit business (CNBC)
Economists expecting payroll report to show increased November hiring following recent storm, strike disruptions (Bloomberg)
Market Snapshot
For the Month Ending 11/30/2024 (Cumulative Returns)1
1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.
Did You Know?
The Santa Claus Rally is a term used to describe the tendency for U.S. stock markets to perform well during the final five trading days of December and the first two trading days of January. Historically, during this seven-day stretch, the S&P 500 has averaged a gain of around 1.3%, outperforming most other comparable periods.
The Santa Claus Rally was first identified by Yale Hirsch in 1972 through the Stock Trader’s Almanac, and its origins are often attributed to a combination of factors. Investor sentiment tends to be more optimistic during the holiday season, with the excitement surrounding the new year fostering increased buying activity.
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
