Dear Mr. Market:
If you’re watching an NBA basketball game and you have one player to take a final shot to win the game, who do you choose? Like him or not the guy who has scored the second most points in the history of basketball is LeBron James and he has made 50.5% of all shots he’s ever taken. Let’s switch sports to much worse odds, like baseball, where the average hitter is around .250 for a batting average. Even the best the game has ever seen was the great Ty Cobb who hit .366 for his career. Speaking of winning or losing, the mecca of odds making is in Las Vegas of course, and if you’re ever interested in losing money, just know that on average you can come out with a winning blackjack hand only 42.4% of the time.
New year, fresh canvas, but pretty much the same problems….So what are the odds of the market going up, down, or sideways in 2024?
Read more: Bulls, Bears, and Ballots: Election Years & the Stock Market
We’ll keep it fairly short and sweet today and focus on a few main charts. Our first is simply a look at how Presidential cycles and specifically election years have played out. My Portfolio Guide, LLC spent the greater part of last year telling people that the third year of an election cycle is the strongest. For those that listened, congratulations as you did better than those who got spooked by the headlines or did not listen. The second best year on record is always the election year itself. Matter of fact it’s up 76.60% of the time. That beats Vegas, Ty Cobb, and LeBron.
We don’t necessarily think we’ll see as strong as year as 2023 turned in but if history plays true to form, you can expect high single to low double digit returns. The average return in year four of a Presidential cycle is right around 10%. Please don’t tell us “it’s different this time” or worse yet, think that your particular favorite candidate is what will make all the difference. This is where we share candid news with you and aim to be an equal opportunity offender. Every election tons of people try to splice the data and figure out which party does better. If you want your advisor to root for your team (validate your opinion or be the “yes” man/woman), you need to go back to the sports trivia we opened this article with. Red vs Blue, right vs left etc., may not move the needle as much as one thinks. What sometimes matters the most is actually having a healthy level of division in Congress.
We wrote several articles the past year that discussed some of the merits, or lack thereof, on stock market seasonality. There are some truly hokey statistics out there which can paint any picture or preach the narrative you want to hear, but it’s 100% normal to see the stock market pull back a bit to start the year. This is especially so after closing out 2023 with a 9 week win streak. Going forward, the year should build strength after the first quarter which is historically sluggish in election years. One thing that could differ drastically from a seasonal standpoint is the summer months. Last year we came out of the gates strong and then saw a rough summer stretch. This year, we expect almost the opposite and if history plays out to what we think it is positioned to do again, you will see a stronger summer than normal and decent finish to the year.
Lastly, what are the probabilities of the market surpassing our projection of a decent year (high single to low double digit return)? Well…if we’re indeed in a secular bull market there is technically a 73.6% chance we actually see double digit returns! We’re not making this up but rather simply following the data.
When analyzing annual returns of the S&P 500 starting from 1926, categorizing them into either secular bull or secular bear markets, 53 of those years fell into secular bulls and below is what those exact returns produced:
- None of the years showed a loss greater than 20%.
- The probability of a -10% to -20% decline was 5.7%.
- 7.5% of the years had a loss of up to 10%.
- 13.2% of the years posted single-digit gains.
- 28.3% of the time, the market gained between +10% to +20%.
- 45.3% of the time, the S&P 500 gains were over 20%.
