It's Friday, the last trading day of 2023 for Wall Street. And to use a football term popular this year, the S&P 500 Index-SPX bulls just need a good brotherly push to reach a record high.
But don't worry, if the new high isn't reached today, it will likely be reached in January, says Tom Lee, head of research at Fundstrat.
Put simply, it is very rare for a market to fall sharply, recover to the previous high and then decline significantly again, he says.
“Since 1950, there have been 11 instances in which the S&P 500 fell 20% and then climbed to within 1% of its previous all-time high,” Lee says in a new note. “In 11 out of 11 cases, the S&P 500 quickly reached an all-time high.”
The average time to reach the record was seven days and even 20 days. This would mean new highs in January 2024.
And it is likely that the market will make further gains: “The median maximum gain over the next 18 months is +22%. So yes, this is a starting point for further gains. “There is only one case, May 2007, where the maximum further gain was nominal (<5%),” writes Lee.
However, the normally optimistic Lee has a warning. Seven of those 11 times the market experienced a consolidation with a pullback. These tend to be modest, often 2-5%, which in the current context could see the S&P 500 fall back to 4,400-4,500.
There are four possible reasons why there could be a decline this time, says Lee.
First, the market is itching as it waits for the Federal Reserve to begin its controversial interest rate cutting campaign. This could be exacerbated by any sign that central bank officials appear unsure whether they will begin easing monetary policy – which the market may expect in March.
Second, the timeline for big tech companies to benefit from AI revenue could be pushed back by what Lee calls a “systemic hack by malicious AI.”
Given the “parabolic gains” at the end of 2023 – the S&P 500 relative strength index remains above the overbought threshold of 70 – Lee believes the stock market needs to consolidate.
Finally, Lee expects a February-March market decline to be “consistent with election year seasonal returns.”
Still, it should be emphasized that Lee is confident about this putative decline, as it is in line with his forecast that most of the market's gains will come in the second half of 2024 and the S&P 500 will hit 5,200.
And in the case of small-caps, he expects the iShares Russell 2000 ETF to help them weather the broader market downturn
IWM increases by 50% next year.
“Ultimately, we see a constellation of reasons for a rally in small caps given falling interest rates, dovish monetary policy from the Federal Reserve, improving economic momentum and an upswing in the real estate market.”
Markets
U.S. stock index futures ES00 YM00 NQ00 were slightly firmer early Friday as benchmark Treasury yields BX:TMUBMUSD10Y rose. The dollar DXY was higher while oil prices CL.1 gained and gold GC00 was around $2,065 an ounce.
| Important asset performance | Last | 5d | 1m | course of the year | 1 year |
| S&P 500 | 4,783.35 | 0.77% | 4.72% | 24.58% | 24.27% |
| Nasdaq Composite | 15,095.14 | 0.88% | 6.11% | 44.22% | 44.06% |
| 10 years treasury | 3,893 | -0.37 | -30.72 | 1.36 | 1.36 |
| gold | 2,074.00 | 0.46% | -0.85% | 13.33% | 13.33% |
| oil | 71.95 | -2.10% | -3.27% | -10.63% | -10.63% |
| Data: MarketWatch. Treasury yields change in basis points | |||||
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The buzz
U.S. economic data on Friday includes the Chicago Business Barometer for December, released at 9:45 a.m. Eastern Time.
U.S. bond markets will halt trading for the year at 2 p.m. on Friday, although the stock market will have a normal-length session. Both will be closed on New Year's Day on Monday and will reopen on Tuesday, January 2nd.
Alphabet Inc.'s GOOG Google has reportedly agreed to settle a $5 billion consumer protection lawsuit alleging the company secretly tracked millions of people who thought they were browsing the Internet privately.
Nvidia NVDA has launched a new gaming chip for China to comply with US export controls.
China will release December services and manufacturing purchasing managers' indices on Saturday.
The best of the internet
The new star of politics: the chip industry.
Classic 60-40 mix of stocks and bonds on the verge of historic gains “after being written off for dead.”
The zeitgeist is changing. A strange, romantic backlash against the tech age is looming.
The graphic
The longer a stock market upswing lasts, the less time traders believe it has left. But as the chart below from Bespoke Investment shows, if history is any guide, the ongoing rally has much more to come.
“The current bull market recently crossed the 400-day mark. However, if it lasted as long as the average bull market since World War II, that would last until the end of May 2026!” says Maßgeschneidert.
Top ticker
Here were the most active stock tickers on MarketWatch (as of 6 a.m. Eastern Time).
| ticker | Security name |
TSLA | Tesla |
NOK | NOK ADR |
NVDA | Nvidia |
GME | GameStop |
MARA | Marathon Digital |
AMC | AMC Entertainment |
MULN | Mullen Automotive |
AAPL | Apple |
AMD | Advanced micro devices |
AMZN | Amazon.com |
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