Until December 20, the S&P 500 showed a positive performance for seven consecutive weeks, an impressive streak representing the longest sequence of weekly wins in about six years, when there were eight consecutive weeks of gains. One might mistakenly assume that extended sequences of weekly victories indicate a pessimistic scenario; however, this is not true. In reality, such trends are more common in rising markets, with the continuation of positive price action considered normal.
When analyzing all seven-week winning streaks since 1950, it is observed that in 25 out of 29 occasions, or more than 86% of the time, stocks recorded gains one year later. This is the first recent indication pointing to the possibility that the next 12 months may offer another promising year for optimistic investors.
In the week leading up to December 20th, over 90% of S&P 500 stocks remained above the 50-day moving average. While this might indicate a short-term overbought condition, it's important to note that this kind of strength is often observed at the beginning of significant uptrends.
Analyzing the past 20 years, periods with such robust participation have resulted in notable gains for the S&P 500. In 14 out of the 15 previous instances, the index showed an increase in the following year, recording an average gain of 16.1%. These patterns suggest that stocks may be heading for a positive year in 2024.
Another rare, yet potentially bullish, signal is our third reason to expect higher prices in ’24.
More than 40% of S&P 500 components recorded a Relative Strength Index (RSI) above 70 in the week of December 11th to 15th, indicating an overbought condition.
However, it is relevant to note that this behavior was also observed at the beginning of extremely robust movements in historical moments, such as in January 1975, October 1982, February 1991, and July 2020. This trend repeated itself in December 2023.
In all four previous cases, one year after these events, there was a significant average increase of 25.7%.
The latest optimistic outlook for 2024 gains momentum as we look at the performance history following declines exceeding 10% (as seen in 2022) followed by recoveries of over 10% (similar to 2023).
In the six previous instances where this pattern repeated, the subsequent year showed consistency, recording gains in all cases, with an average of 11.7%. This trend suggests a promising scenario for 2024, which would certainly instill optimism among investors.
