Investors are balancing their hopes for growth with rising Treasury yields, and the uncertainty of the presidential election.
MarketWatch reported that the S&P 500 defied the “sell in may and go away” adage by exhibiting strong performance between May and October. This sets the stage for a robust stretch from November to April if history is any guide.
History supports a rally from November to April
CFRA Research data shows that the November to April period has consistently outperformed all other six-month periods dating back to 1945. The S&P 500 averaged a gain of nearly 7% compared to the modest 2% gained in the period from May to October.
Sam Stovall (chief investment strategist at CFRA) highlighted the market’s performance in a recent note to clients.
History says no, but it does not guarantee that the prior momentum served as a running-start for the next November-to April period.
The market has already experienced a remarkable rise this year. The S&P 500 gained over 16% between May and October, putting it in line for its biggest May-to-October rally ever.
Stovall noted that past patterns show that when the S&P 500 gains over 10% in the period of May-October, it increases by an average of 13% the following months, November-April.
The S&P 500 has delivered double-digit returns on five occasions between November-April as well as May-October.
Four of those instances saw the index continue to grow, with an average 11% increase in the period between November and April.
CFRA data shows that the favorable six-month stretch is not just beneficial to US large-cap stocks, but also to small-cap indexes, such as Russell 2000, and international indexes, such as MSCI EAFE or MSCI Emerging Markets.
This suggests that despite recent gains, the market may still have room for growth.
Rising yields, US election concerns hamper investor sentiment
Despite the encouraging historical statistics, investor sentiment remains cautious due to concerns about election-related issues and Treasury yields.
Last week, the stock market was shaken by a sharp increase in the yield on the 10-year Treasury. Longer-dated yields reached their highest level in almost three months.
The potential fiscal impact of the upcoming elections is at the heart of this concern.
The race between Donald Trump, a Republican, and Kamala Harris, a Democrat (Democratic), has sparked concerns that the next administration could increase the federal debt, putting additional pressure on yields.
The 10-year Treasury yield of 4.3% is the key level to watch for equities. This threshold has historically been a barrier to stock momentum.
Jose Torres is a senior economist at Interactive Brokers. He commented on the matter, noting that
How much upside is still possible with stocks up 23% so far this year? The S&P 500 has had a great 10 months, but it is still behind the pace set in recent years. In 2023, 2021 and 2019, the S&P 500 delivered 24%, 27% 29% and 30% for investors over the first 10 month of the year.
Torres outlined several conditions for stocks to continue their upward trend, including “a red sweep in Washington, favorable AI remarks on earnings calls, moderated economic data, calmer interest rates.”
Will the US stock market be able to scale its “wall of worry”?
Market analyst Stovall is optimistic about the possibility of continued growth and suggests that the stock market could continue to climb its “walls of worry.”
In a subsequent interview with MarketWatch he expressed his confidence that favorable economic statistics, along with anticipated interest rate cuts and robust earnings from the technology sector will provide further support for the market.
Stovall said, “I expect stock prices to rise as we gain more clarity about rate cuts and tech earnings continue exceeding expectations.”
The US stock market ended Tuesday with a mixed performance. This shows the market’s resilience in the face of fluctuating conditions.
The Nasdaq Composite closed up 0.8%, its 28th record closing of the year. The Dow Jones Industrial Average fell by 0.4%, and the S&P 500 gained 0.2%.
The US stock market could still see its best performance period despite the looming uncertainty. History, broader market participation and possible policy support are on its side.
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