As we approach month-end, the markets are bracing for a bustling earnings week. The S&P 500 charted another 1% ascent last week, tallying up to a robust +2.54% for both the month and the year. Meanwhile, the Nasdaq an even more impressive +3.54%. Echoing the sentiments of the January barometer, where a positive closure historically translated to an upbeat year-end—80% of the time—with an average annual return of 13%, the market seems to be setting a promising tone.
As we embarked on the new year, the analysis and speculations within this newsletter highlighted imminent risks of a correction. This cautionary stance coincided with the indices edging closer to all-time highs while grappling with diminishing momentum. While the market briefly dipped by a modest 1.8% in the first week of the year, it swiftly rebounded, forging ahead in subsequent weeks and culminating in a nearly 2% surge beyond the previous all-time highs by the end of last week.
The 2024 outlook presented by Lines On A Chart remains straightforward: Correction, Rally To New All-Time Highs, Fed Pivot, Next Bear Market. This overarching perspective persists, with a special nod to small caps and the '2020 growth cohort' anticipated to outperform in the latter stages of the rally.
Despite the S&P 500 scaling nearly 2% beyond its prior all-time peak, my analysis leans toward the likelihood of an impending correction as the most plausible next move before the index navigates toward a 2024 pinnacle.
Before delving into the charts, consider two thoughts heading into next week:
Earnings Spotlight: Between Tuesday and Thursday, major market components like Microsoft, Apple, Google, Amazon, Meta, and AMD are set to report earnings. These companies collectively represent a substantial 24.5% of the S&P 500 and a significant 33.5% for the Nasdaq 100.
February Trends: February historically stands as the second-worst month for the Nasdaq, as depicted in the chart below showcasing one-month Nasdaq returns since 1985.