According to the @WSJ:
“In the week that ended Wednesday, U.S. equity mutual funds and exchange-traded funds accumulated nearly $56 billion, marking the second-highest weekly intake recorded since 2008, as per EPFR data. These funds have now enjoyed inflows for seven months in a row, the most extended streak… pic.twitter.com/JWDHQpT86W— Mohamed A. El-Erian (@elerianm) November 17, 2024
The financial markets are witnessing an unusual scenario, with the S&P 500 on track to achieve consecutive annual gains exceeding 20%. Such an event has only been recorded thrice in the last century, as stated by Deutsche Bank. This latest upswing follows a significant rally post Donald Trump’s election victory.
This week, corporate earnings will garner significant focus within global markets, including releases from Nvidia, Target, and Walmart.
With economic data being relatively sparse this week, keep an eye on
PMIs, UMich consumer sentiment, and existing home sales;
UK inflation,…— Mohamed A. El-Erian (@elerianm) November 16, 2024
“Historically, rallies following tightly contested elections have been standard, but the current pace is noticeably quicker than before,” remarked Deutsche Bank strategist Parag Thatte. He characterized this market advancement as “remarkable,” even prior to last week’s record highs. A metric from Deutsche Bank regarding equity positioning indicated that it didn’t drop to underweight before Election Day—contrary to the recent trends.
The rally witnessed last week was partially fueled by a “collapse” in equity volatility premiums, which surged leading up to the election.
Greetings from #Germany, a nation that is losing its foothold in the emerging Trump-aligned world order. The downturn of Germany is visible in the stock markets: the total market capitalization of German companies as a percentage of global market capitalization has dipped below 2% again. Only two German firms – SAP and Siemens – are ranked… pic.twitter.com/Cjhrlok691
— Holger Zschaepitz (@Schuldensuehner) November 16, 2024
Thatte explained, “The option volatility curve for the S&P 500, which had forecasted next-day volatility at over 35% on Election Day, is now forecasting it in single digits. Additionally, both the VIX and the volatility premium included within have also decreased significantly.”
Wall Street’s Oppenheimer has pinpointed further causes for optimism.
The firm reviewed 11 years where the S&P 500 surged by over 20% during the first 217 trading days.
Consecutive S&P 500 Gains
Historically, these years have yielded at least an additional gain of 0.5% from that juncture until year-end.
If past patterns hold, the S&P 500 is likely to close 2024 above 6,000. If it mirrors the median increase seen in those years, there’s potential for the S&P 500 to end higher than 6,200. However, some analysts on Wall Street express concerns that the rally may soon decelerate, at least in the short run.
Jonathan Krinsky, the chief market technician at BTIG, highlighted that 27% of S&P 500 firms reached 52-week highs on Wednesday, a day when stocks made a significant leap right after the election. “Since 2009, when over 25% of S&P 500 components achieved 52-week highs, the 10-day returns averaged -0.49%, with upwards movements only occurring 43% of the time. One month later, the S&P 500 was down in eight of the last ten instances, averaging a -1.65% return,” noted Krinsky.
The S&P 500 closed Friday’s session at 5,995.54 after briefly crossing above 6,000 for the first time. Citigroup strategist Scott Chronert suggested that investors might consider taking profits. “We maintain our stance that investors should tactically reduce exposure to a post-election rally, especially if the S&P 500 surpasses our year-end target of 6100, which aligns with a +5% move from Election Day,” he commented.
