S&p500 2H2024…and beyond! Potential Paths, Comparisons, and Candid Cautions to Consider

While the OHFG investment team alluded to our 1h2024 outlook as far back as 4q2022 and released it in its entirety over 4 videos in late 2023, many clients and prospects always ask for more.  They ask our thoughts on longer term time horizons that stretch out beyond 6 months, a year, or even multiple years.  Investors, more often than not these types of long-term forecasts are a WOT, waste of time, as one’s accuracy decays exponentially with time.  This is even though many strategists will try to fool their followers with guestimates of false precision. What do I mean?  I mean these forecasts may turn out to be off based by hundreds in not thousands of S&P500 points, like many 2023 forecasts, but if I throw out extra digits, for example I’ve seem strategists carry their targets out to single digits and decimals, say the doomer for forecasts for 3125.5 for 2023, it reads as smart.

For our OHFG 2023 outlook, I coined the term “The Old Normal”.  Yes, I blatantly changed or plagiarized, take your pick, the overused “New Normal” phrase made famous by the always eloquent economist Mohamed El-Erian.  Whether by our join knowledge and experience, hard-work, analysis, or pure luck, the OHFG 2023 market forecasts turned out to be nearly on point in both price and time for the entire 2023.

To appease, those who keep asking, and with full disclosure that the OHFG investment team might change our outlook or collective minds at any time, I’m going to lay out visually what the second year, 2024, of the “Old Normal” might look like throughout the coming year. This is considering the three factors we presented in our 1h2024 outlook: volatility, economic growth, which is slowing, the 4^th year of a Presidential cycle, as well as seasonality.  For this video, I am using the cash S&P500 that close the year rounded to 4769, not the S&P500 futures markets that closed at 4820, the difference being about 1.07% which is attributable to the option premium of the March 2024 futures contract which is now the front month.

Here is a weekly chart of the S&P 500 dating back over 5 years to pre Covid.  You can see the Covid-Crash in late 1q2020, the recovery to a top at new ATH’s in December 2021 near 4800, where we are near today, the subsequent -25% drop in 1h2022 in nominal terms and -35% drop in real terms as GDP went negative for two consecutive quarters, but of course politicians didn’t want to call it a recession, and the subsequent rally that began by basing in the 2h2022, and accelerating upward the 1h23, correcting -10% in 3q23, and off the late October 2023 low, resuming its path to near ATH’s where we sit now.  Full disclosure, I do not have any chart technician designations by my name.  I am not a trained professional in the area of charting.  However, I have done this long enough to know, historically speaking it would be very rare to break out to new ATH’s and stay there giving 1- we are entering a new year with many investors likely looking to recognize gains they have deferred until the new year, 2- know many retail investors who having suffered through the last two years of no net gain since December 2021 will look at “selling some stock against their old highs” just in case this proves to be the dreaded “double top” formation, and 3- know we are just about to enter 4q23 earnings season and given the reaction of the early reporters like Oracle and FedEx, many large investors will look to sell first, shoot first and ask questions later on any weakness in management 2024 forecasts and squishy outlooks.

Zooming in more closely lets take a look at the daily chart of the S&P500. We can get an even better picture of where we sit, or stand or stall.

As much bullish talk as there has been the second half of December, I warn those who waited until Jerome Powell flipped dovish on December 13^th to buy stocks that you might soon regret your decsion. Why? Because, regardless of what you have heard on TV recently, the moves up in November and December while uncommon, are not unprecendented, particulalry for this stage in the economic and interest rate cycles.  We discussed in advance of this 8-9 week rally that 1-regaining the entire summer loss in only 4 weeks was likely, rallying from 4150 to 4600, and recoverying back to near ATH’s over the next 4 weeks in December was also the most likely outcome.  The good news is these rallies usually last almmost exaclty 5 months in total. If our current rally started around October 30^th,  then it would be done around the end of March.  The bad news? Months 3 and 4 usually contain one or more pullbacks of 3-5%, and can even include a correction over 8%, before then rallying to sutained new ATH’s.  For this type of analogies look no further than, yeap you guessed it, 1q2000, post 1999, nearing the Interent Bubble Top , which is why I do NOT share others enthusiasm for how much the normal monthly pattern for year 4 will hold in 2024.  Once again here is the big data on full year returns for the 4^th year from Merrill Lynch and Steve Suttmeier.

And here is the finer monthly detail from Steve’s group as well.  Choose your own adventure or analogy, the one we have been using has been working pretty well since October 2022.

When looking at the finer details of the last 100 years, and comparing our current cycle that started in October 2022, my work continues to say we are mirroring a prior cycle of October 1998 – March 2000, the Internet, Dot.com bubble.

In mid-December 2023, Jerome Powell talked quite similarly to Alan Greenspan’s speeches in December 1999 as both were trying to calm the bank markets for year end, and give the banks better year end liquidity, and balance sheet mark to market positions. Greenspan then came out in early 2000 once again hawkish, volatility ramped quickly, and the markets corrected for 8 weeks before going on to make their Dot.com bubble highs from Mid-March to the end of March depending on which index you track.

The good news, under this pattern, as we have said for quite some time, new ATH’s in the S&P 500 are likely in the first half of 2024, most likely in late 1qt quarter with the S&P 500 nearing 5000. The bad news is that under this scenario, and under most 4^th year Presidential cycles another 100 points on the S&P 500 is about the most one could hope for during the rest of 2024, S&P 500 equal 5100, and often the market declines into the election as volatility increases, the economy slows, and investors loose conviction.

Here’s a rough picture of how that scenario might look in price and time on the S&P500 on a chart for 2024, year 2 of the Old Normal.  (insert chart with edits for 2024) Of course, no guarantees, and we can and most likely will change our views over the next 6 to 12 months.  Wait, you’re not satisfied with that, you want even more?  You want us to walk out on a ledge no one should?  You want our thoughts on year 3 of the Old Normal, 2025 already?  Man, you aren’t making this easy.  Ok, here it is. It’s just me and you and you aren’t going to tell anyone else, right.  It will just be our little secret, right?  Ok then I’ll tell you, Ready, let me whisper it so no one else hears, ok.  Here it is…I don’t know! No really, I don’t know. And no one does. No really, believe me, we’re friends, right?  We have to have some credibility here over the last 5 years of doing this together and given what we messaged in late 2022 going into 2023 largely happening in both price and time?

Here’s my current thoughts on year 3 of the Old Normal, 2025, the S&P 500 will be somewhere between 3250 and 6000.  Yeap, you heard that right.  How do I arrive at what looks like two huge tails? Because I don’t know.  On the downside, S&P 500 equals 3250 in 2025 would be a recession hits the US economy due to things like long and variable lags of the Federal Reserve interest rate hikes, a mess in the USA 2024 Presidential election causing a halt in economic growth, or some big international event like China invading Taiwan or Russia expanding its war into Europe beyond Ukraine. Investors, -30-35% losses in the S&P500 in real terms is a normal recessionary outcome for stocks historically.

On the wildly optimistic side?  S&P 500 equals 6000 or greater in 2025 would be the Goldilocks outcome.  What would goldilocks look like?  We sustain 4% GDP growth comprised of 2% real growth and 2% inflation.  The 10-year treasury trades with little to no volatility near 4% all year in 2025.  This would give bulls a reason to say 1/.04 is the right P/E multiple, 25x EPS and 2026 earnings are underestimated because 1- AI technology turns out to be a productivity boon for corporate America on the expense side and or the 2017 tax cuts, that are set to expire at the end 2025, are extended by the next administration and Congress.  That’s Goldilocks.  That’s the “Roaring 20’s replay” a few economists have spoken of.  That’s an S&P 500 of 6000 or higher into 2026.  Possible?  Sure.  Probable? Not currently as I see it.

So that’s it.  For those of you always asking for more.  Just between friends, there it is.  With absolute uncertainty of the future beyond the next 6 months, my thoughts on “what if” and what the future may hold.  As of now, I am certain that the future is, uncertain that’s the bad news.

The good news is our in-house investment team has just released a tool that is structured to help investors and other RIAs better navigate through more uncertain times that may require more tactical decisions in ones investments. If you are interested in learning more, go to OakHarvestFunds.com where you can find out more about this new investment tool.