Zinger Key Points
- Even after factoring in the lean phase seen in August and September, the S&P 500 is up 13.90% for the year-to-date period.
- Earnings, Fed moves and the economic data are among the key catalysts that can seal the fate of the market for the remainder of the year.
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The stock market’s path has been uncertain since the broader uptrend stalled in August. In the face of numerous economic and geopolitical challenges, the odds of a significant breakout from the current lackluster phase seem slim.
However, there is a glimmer of hope in historical trends.
What Happened: According to data from FundStrat, the broader S&P 500 Index posted an average gain of 3.6% between Oct. 17 and the year-end on years when the index gained more than 1.4% in the first five days and showed negative performance for the previous year. CNBC’s “Squawk on the Street” co-anchor Carl Quintanilla shared this information on X (formerly Twitter).
This data is based on market performance since 1950. In seven years when both of these conditions were met, the market advanced about 86% of the time.
However, the near-term outlook may not be so optimistic. The average change from Oct. 17 to the end of the month in these years was a negative 0.2%. Although October saw an average gain of 2%, November and December posted average gains of 1.2% and 2.5%, respectively. In these seven years, the S&P 500 gained an average of 25.3%, with a win probability of 100%.
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Why It’s Important: Despite the sluggish movement seen in August and September, the year-to-date performance of the S&P 500 stands at 13.90%. Expectations of positive earnings growth could support the market during the earnings season. FactSet’s research indicates a cumulative earnings growth of 0.4% for S&P 500 companies, marking the first positive growth since the third quarter of 2022.
The Federal Reserve’s rate-setting committee, the Federal Open Market Committee, is set to meet from Oct. 30 to Nov. 1 to decide on the Fed funds rate. Recent comments from Fed speakers have conveyed a dovish message, raising hopes for at least a pause in the tightening cycle. Such a decision and hints of an end to the tightening cycle could trigger a stock market rally.
However, the Federal Reserve faces a delicate balance as inflation remains persistently above the central bank’s target. Additionally, economic growth is holding up reasonably well despite concerns about an impending recession. A recent Commerce Department report revealed a robust 0.7% month-over-month increase in retail sales, more than double the 0.3% expected by economists, underscoring the economy’s resilience.
Geopolitical tensions in Eastern Europe, the Middle East, and China could potentially have a dampening effect, given their potential impact on economic growth.
Nonetheless, the traditional Santa Claus rally, typically observed in the second half of December, could lift the market.
The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the performance of the S&P 500 Index ended Tuesday’s session down 0.22% at $435.04, according to Benzinga Pro data.
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