Why You May Want to Re-Think Bailing on Stocks into Yearend
You've likely heard Isaac Newton's quote on gravity: "What goes up must come down."
But when it comes to the stock market, Newton's first law is more apt: An object in motion will stay in motion.
But don't take my word for it. Let's prove it with data.
Stocks go up… and they go down.
But sometimes when they go up, they ramp a lot more than the crowd expects.
That's the case with 2023. Coming into the year, most pundits were worried about the economy… and businesses. Rates were rising. Rampant inflation seemed to never quit.
The sure-to-come recession was all but inevitable. The Wall Street worry-list was… and still is… never ending.
After sitting through a painful 2022 where stocks plunged nearly 20%, investors had plenty of reasons to "sit this one out" until the coast clears.
YET the world and the stock market defied the bears.
Fast forward to today, the S&P 500 is merely a stone's throw from all-time highs:
Source: Yahoo Finance
After a 17% gain from January to August, you may be wondering if now's the time to take some chips off the table.
After all, how much higher can the market go from here? Shouldn't we worry about a pullback?
Turns out, just because the market is up a lot doesn't mean it's time to jump ship.
In fact, it's the opposite.
Given 2023's powerful performance, I reviewed all years since 1980 where the S&P 500 had at least a 10% year-to-date gain through August.
I wanted to compare this year to similar ones.
Prior to 2023, the S&P 500 had at least a 10% year-to-date gain through August 16 times. That's a healthy-sized dataset to analyze.
As we can see below, after gains of 10%+ through August, September — December doesn't disappoint as stocks return follow-on gains of 4.9%:
That's juicy if you ask me.
Incredibly, you've got an 81% chance of higher markets by yearend, which are around the same odds of winning the pot when you're holding two aces in the popular poker game, Texas Hold'em.
Odds don't get much better than this on Wall Street.
Now, can stocks go down after a big rally through August? OF COURSE — just don't bet on it.
Pocket aces do lose from time to time. But the data says to keep your chips in the center. Don't fold.
If you're worried about a pullback simply because stocks are defying gravity right now, put those fears aside. This study should put you at ease.
Beautifully, this bullish slant in the data echoes my earlier message that August presents a great buying opportunity. Q4 of pre-election years are notable for outsized rallies.
It's simple.
Data-driven decisions trump emotions every time in my book.
This is exactly how Quantum Edge Pro analyst Jason Bodner analyzes markets. He relies on data-driven analysis to score stocks and understand market dynamics.
He's using the current pullback as an opportune time to go shopping for great stocks. Given the bullish setup, Q4 could be a boon for his strategy.
It's a top AI stock poised to take advantage of the tailwinds in the market. To get the ticker, plus all of Jason's prime picks, check out Quantum Edge Pro.
Have a good week,
Lucas Downey Co-founder, MAPSignals.com
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TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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