US equities could be ready for a respite after a strong final leg of their rally, market guide Stock Trader’s Almanac said in a note on Friday.
Historically, mid-year rebalancing of the Russell Index portfolio and institutional funds, coupled with the second-quarter earnings season and the start of the second half of the year, have made July the best month of the third quarter.
Within this, the Almanac expects the ongoing bullish trend to continue its upward trend and reach new highs by the end of the year. However, strong gains so far in 2024 “may have caused the market to overextend itself a bit,” it added.
The 12-day mid-year rally, which spans the last three trading days of June through the first nine trading days of July, has likely previously been fueled by rebalancing activities and second-quarter earnings reports occurring in late June and early July, Almanac noted.
“After this rally, which typically peaks near the middle of the month, a mild pullback in the 5-8% range would not be surprising,” the note said. This mid-year rally is known as “Christmas in July,” the Stock Trader’s Almanac noted.
The market guide noted that a bullish election year combined with a major macro technology trend in generative AI and related industries have driven the market higher than expected. They suggest that this AI could be the “paradigm-shifting and culturally-enabling technology” that drives the next phase of their 2010 Super Boom Forecast.
Their updated election year seasonal charts for the NASDAQ and the S&P 500 indicate that the 2024 market is trending but significantly above levels of previous election years and other seasonal scenarios. Currently, the S&P 500 is even 5 percentage points above the bullish setup of the best 1 quarters of election years.
“The market has already met and surpassed the 8-15% level of our 2024 Annual Forecast base case,” Almanac continued. “While this puts our Best Case forecast of 15-25% earnings for 2024 in play, it appears the market is primed for a reversion to the mean.”
Unless something dramatic happens during this unprecedented presidential debate or big surprises emerge in the next two weeks, analysts at Stock Trader’s Almanac expect the mid-year rally to push the market higher into mid-July.
Beyond that, the market can become vulnerable to election campaigns and political gaffes, Fed comments, disappointing economic data and the usual summer market volume depression.
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