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November 2024 Market Brief
Moving On
“Don’t let some hell-bent heart leave you bitter/ When you come close to selling out, reconsider.” -Lee Ann Womack
The election overhang is finally behind us, Q3 earnings season is about 90% done, and the bull market has survived its historically weakest period with nary a blemish. But even with all that noise comfortably behind us, there is a feeling now of, now what? And for many, the worry cycle has begun once again. The What-ifs are endless with a new administration looking to pivot policy and potential for unprecedented overhauls to government (DOGE- the Department of Government Efficiency) or the removal of the Fed’s independence loom in the distance. We often warn about waiting for disaster and betting on doom-and-gloom. And we caution investors about reading too deeply into geopolitical events as they are poor predictors of market directionality. The profit cycle matters far more than the political cycle, and elections will roll in again in 2 years. The political map will constantly be shifting over the coming decade, making it more difficult to achieve either party’s goals. The coming new administration, like all incoming administrations, has grand plans to fix all of America’s problems from war, poverty, and growing deficits. America, however, is like an aircraft carrier. It often cannot nimbly pivot and tends to gradually turn over time, always powering forward. Everyone wants to change the world, very few often succeed in all their plans.
We often joke the only people that don’t like this bull market are economists as the tried-and-true indicators such as the yield curve inversion or the Sham rule have so far been false flags. The naysayers will eventually be correct, at some point the bull market always rolls over into a bear, but like a stopped clock being right twice a day, the bears are only right by statistics as all good things eventually end. We continue to advocate this market is in the middle innings of a bull rally, and while nothing is cheap, we anticipate further upside. As we have discussed for over a year, this is mid-late 1990’s all over again with the rally driven by transformative technological innovation driving higher profit margins, better efficiency, and higher earnings. While we have hit a bit of turbulence post-election, it is highly likely the dip is bought and a bottom put in before it even hits a -10% correction. So far, in 2024, our largest pullback on the S&P 500 was -8% and very short lived. With a record $7 Trillion tucked away in money market funds, there is substantial dry powder on the sidelines waiting for a better entry point.
What might kill off this bull market? Historically there are 4 main reasons the bull market eventually fails: Policy error (Fiscal or Monetary), a recession, earnings start dropping, or rapidly increasing inflation. High P/Es and valuations are not a reason a bull market fails. Low volatility is not a reason a bull market fails. The world feeling like a dumpster fire is not a reason either. In the last 100 years, the average length of a bull market is 3.8 years, and over the last 25 years it stretches to 5 years. JP Morgan1 cites the median bull market for the S&P 500 at 46 months with a median return of 110%. Yes, we have made over 50+ new all-time highs on the S&P 500 this year, but that is the normal evolution of a bull market, and it may hit 50 more over the coming 12-18 months. While nothing is cheap, and some “froth” as we like to call it in finance-land may occur, the underpinnings of the bull market remain strong and the outlook bright for 2025.