S&P 500: 5 Bullish Mid-Term Signals Pointing Towards a Strong Q4 Performance

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Volatility, gauged by the Vix indicator, has seen a exceptional 41% lower previously 4 weeks, marking its ninth most important drop inside this historic timeframe.
In the meantime, managers are actively divesting from {dollars} on the quickest price in a yr, underneath the conviction that additional rate of interest hikes are unlikely.
Be careful for the well-known 8 days on the finish of November, which don’t normally disappoint markets.
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1. Historical past Is Repeating Itself to Perfection so Far in 2023

Maybe now could be an opportune second to recall that traditionally, the interval from November by means of January stands out as essentially the most bullish three-month stretch of your complete yr. Not solely that, it marks the beginning of essentially the most bullish six-month section for the inventory market.

Within the ongoing 2023, we have witnessed the show of the precise historic sample:

A strong first half.
A comparatively weaker third quarter.
Presently, we discover ourselves in a theoretically bullish year-end stretch, with the exhibiting a noteworthy uptick of over +7% in November.

Turning our consideration to the S&P 500, historic knowledge since 1945 reveals Thanksgiving week as favorable, boasting a median achieve of +0.60%. Since 2000, this determine has risen to +0.87%.

Does this suggest traders ought to gear up for the much-awaited Santa rally? We will see. However odds are definitely stacked in bulls’ favor.

2. The historic Drop in Volatility

The volatility indicator has undergone a big downturn, plummeting by -41% previously 4 weeks (from 21.27 to 12.46). This marks the ninth most substantial 4-week drop in its complete historical past.

Closing Friday’s session at 12.46, the VIX hit its lowest degree since January 2020. Let’s delve into the 9 most noteworthy 4-week declines:

2016: -53%, reaching 12
2018: -50%, reaching 14.6
2020: -45%, reaching 20.8
2020: -45%, reaching 35.9
2021: -44%, reaching 17.2
2013: -43%, reaching 12.9
2011: -43%, reaching 24.5
2020: -42%, reaching 38.2
Present yr 2023: -41%, reaching 12.5

This is an intriguing tidbit: inspecting the S&P 500’s efficiency following these occurrences:

One yr later, with just one exception, it confirmed an upward development.
9 months later, barring two events, it exhibited an upward trajectory.
Six months later, with just one exception, it registered a rise.

In the mean time it’s resting on its help, being the chart clarifying as to the relevance of that space.

3. The 8 Bullish Days on the Finish of November

The famend eight-day stretch on the shut of November alerts a extremely favorable interval for the markets. Within the case of the S&P 500, courting again to 1950, the times from the twenty third to the thirtieth have confirmed persistently fascinating; in reality, the market has by no means, on common, skilled a decline throughout this timeframe.

The breakdown is as follows:

Day 23: +0.20%
Day 24: +0.48%
Day 25: +0.15%
Day 26: +0.21%
Day 27: +0.22%
Day 28: +0.12%
Day 29: +0.03%
Day 30: +0.09%

Let’s observe whether or not historical past repeats itself as soon as extra this time round.

4. US Greenback Promoting

Institutional managers not have faith within the , as they consider that the Federal Reserve has reached its ceiling and won’t proceed to lift rates of interest, presumably even pivoting decrease in 2024.

Consequently, they’re promoting {dollars} on the strongest tempo in a yr, having shed 1.6% of their open positions.

In line with State Road, there have solely been six such speedy gross sales previously twenty years, with the closest in time happening in November 2022.

A decline within the worth of the greenback signifies that overseas customers and governments obtain a better quantity of {dollars} for each unit of their home forex. This expanded buying functionality permits them to amass a bigger quantity of products and companies from US corporations thus reflecting in higher earnings for world US-based corporations within the upcoming quarter.

5. Investor sentiment (AAII)

Bullish sentiment, i.e. expectations that inventory costs will rise over the subsequent six months, elevated 1.2 share factors to 43.8%. Optimism stays above its historic common of 37.5%.

Bearish sentiment, i.e., expectations that inventory costs will decline over the subsequent six months is at 28.1% and stays under its historic common of 31%.

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