S&P 500 on track for rare gains

Per the @WSJ:
"U.S. equity exchange-traded and mutual funds drew nearly $56 billion in the week ended Wednesday, the second-largest weekly haul in records going back to 2008, according to EPFR data. Such funds have drawn inflows for seven consecutive months, the longest streak… pic.twitter.com/JWDHQpT86W

— Mohamed A. El-Erian (@elerianm) November 17, 2024

The stock market is experiencing a rare occurrence, with the S&P 500 on pace to deliver back-to-back years of gains above 20%. This has only happened three times in the past century, according to Deutsche Bank. The latest surge follows a sharp rally after Donald Trump won the presidential election.

This week, corporate earnings will attract a lot of attention in the global economy/markets, including Nvidia’s, Target’s, and Walmart’s releases.
In a relatively light week for economic data, watch for
PMIs, UMich consumer sentiment, and existing home sales;
UK inflation,…

— Mohamed A. El-Erian (@elerianm) November 16, 2024

“Rallies following close elections have been the historical norm, but the current one is clearly faster than prior ones,” noted Deutsche Bank strategist Parag Thatte. Thatte described the market advance as “exceptional,” even before last week’s surge to all-time highs. A Deutsche Bank measure of equity positioning showed that it never fell to underweight before Election Day, contrary to what is typical in recent cycles. Last week’s rally was partly driven by a “collapse” in equity volatility premiums, which intensified heading into the election.

Good morning from #Germany, a country losing ground in the new Trumpian world order. Germany’s decline is evident in stock markets: the total market cap of German comps as a % of global market cap has dropped <2% again. Only two German companies – SAP and Siemens – are ranked… pic.twitter.com/Cjhrlok691

— Holger Zschaepitz (@Schuldensuehner) November 16, 2024

Thatte explained, “The S&P 500 option [volatility] curve, which had priced next day vol at over 35% on election day, is now pricing it in the single digits. The VIX and vol premium embedded in it have collapsed as well.” Wall Street investment bank Oppenheimer has identified additional reasons for optimism. It examined 11 years in which the S&P 500 jumped more than 20% over the first 217 trading days.

Back-to-back S&P 500 gains

Historically, these years saw a minimum additional gain of 0.5% from that point through the end of the year. If history repeats itself, the S&P 500 should end 2024 above 6,000. Matching the median advance in those years could potentially push the S&P 500 to finish higher than 6,200. However, some on Wall Street are worried the rally may soon cool off, at least in the near term. Jonathan Krinsky, chief market technician at BTIG, noted that 27% of S&P 500 companies hit 52-week highs on Wednesday when stocks made an explosive move the day after the election. “Since 2009, when more than 25% of S&P 500 components hit a 52-week high, 10-day returns have averaged -0.49% and higher just 43% of the time. Thirty days later, the S&P 500 has been lower eight of the last ten times averaging a -1.65% return,” Krinsky said. The S&P 500 closed Friday’s session at 5,995.54 after briefly trading above 6,000 for the first time. Investors should consider taking profits, according to Citigroup strategist Scott Chronert. “We reiterate our view that investors should tactically fade a post-election rally should the S&P 500 exceed our 6100 year-end bull case target, which roughly aligns with a +5% index move from election day,” he said.