Bullish. January is the third month of the Best Six/Eight, but it is the last of the Best-Three-Consecutive-month span. January is the top month for NASDAQ (since 1971) averaging 2.7%, but it has slipped to sixth for DJIA and S&P 500 since 1950. Election-year Januarys have been weaker (DJIA -0.01%, S&P 500 +0.2% NASDAQ +1.7%). The Santa Claus Rally ends on January 3rd and the First Five Days early-warning system ends on the 8th. Both indicators provide an early indication of what to expect in 2020. We will wait until the official results of the January Barometer on January 31 are in before tweaking our 2020 Annual Forecast.
Holiday cheer. According to Investor’s Intelligence Advisors Sentiment survey bulls are at 57.7%. Correction advisors are at 25.0% and Bearish advisors are 17.3%. New all-time highs, bullish yearend seasonality and the holiday season typically cause high levels of bullish sentiment from now until well into the New Year.
Improving. U.S. labor market remains firm with unemployment declining to 3.5% and 266,000 net new jobs added in November. A firm labor market should continue to support consumers. Estimates of Q4 U.S. GDP are improving. Atlanta Fed’s GDPNow model is forecasting 2.3%. Trade outlook also appears to be improving with a Phase 1 deal with China and USMCA advancing through Congress. Corporate earnings are also forecast to improve in 2020.
Breaking Out. After a brief early December pause, DJIA, S&P 500 and NASDAQ all hit new all-time highs. Small caps, measured by the Russell 2000 have not traded at new highs yet, but appear to be on course to do so after finally breaking through resistance right around May’s high close.
1.50-1.75%. At the last scheduled meeting of the decade, the Fed left rates alone and confirmed that is where rates are likely to remain, for now. QE4, Fed balance sheet expansion, also continues in 2020. Low rates and an expanding Fed balance sheet have proven to be bullish for stocks. It would be surprising if this time was any different.