The Wolf Den #899 - Green Is Good
What will the stock market do in 2024?
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In This Issue:
Green Is Good
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Ripple Ordered to Produce Key Financial Documents
Solana Pulls A Solana
MicroStrategy’s Earnings
Bitcoin $100K, Ethereum $8K, Solana $400: Bullish Predictions For 2024 With Tom Dunleavy
Green Is Good
Major index investors had a remarkable 2023.
The S&P 500 climbed 24%, the NASDAQ surged 43%, and the Dow Jones increased by 14%. Historically, a fruitful year for these indexes would generally result in gains of 7-10% for the S&P 500 and Dow Jones, and 10-15% for the NASDAQ. These remarkable gains surpass the typical benchmarks, leading to speculation about the market's trajectory in 2024.
Considering these extraordinary increases, it's rational to ponder whether the markets might enter a period of consolidation or cooling off in 2024. While past performance is not a definitive predictor of future trends, such significant growth often prompts investors to reassess and recalibrate their expectations for the following year.
Let's delve into this question further.
Take a look at this chart of the S&P 500 historical annual returns dating back to 1927. “Performance is calculated as the % change from the last trading day of each year from the last trading day of the previous year.” What do you notice?
The first thing I notice is that green years tend to cluster. I only counted three green years that were isolated and that includes the first year on the chart, 1927.
On the chart, I counted…
Clusters of two green years - 6
Clusters of three green years - 5
Clusters of four green years - 2
Clusters of five green years - 2
Clusters of six green years - 1 (2011 was neutral)
Clusters of seven years - 0
Clusters of eight years - 1
The cluster of 8 years from 1982 to 1989 marked one of the S&P 500's strongest periods of consecutive positive performance, as shown below.
1982 - 14.76%
1983 - 17.27%
1984 -1.4%
1985 - 26.33%
1986 - 14.62%
1987 - 2.03%,
1988 - 12.4%,
1989 - 27.25%
On the flip side, clusters can be followed by sharp decline years.
The 1995-1999 green cluster was followed by three consecutive years of decline, with returns of -10.14%, -13.04%, and -23.37% respectively.
The 2003-2007 green cluster was followed by a single year of -38.49%, while the 2019-2021 green cluster was followed by a single -19.44%.
In historical terms, clusters of red are far less common than clusters of green. Moreover, clusters of green are frequently succeeded by single red years.
If we simplify and adopt a broad perspective, there's a higher likelihood that 2024 will be a green year rather than a red one. Consequently, this would initiate a cluster beginning in 2023 with an unknown endpoint. This conclusion is derived from the notion that single green years are significantly less common than green clusters, which suggests a higher probability of continued positive performance in the following year.
Here’s the proof:
Total number of clusters - 16
Total number of years in clusters - 59
Total number of years from 1927-2024 - 97
Percentage chance a cluster of green years form at any given time i.e. right now: 60.82%
Sometimes simple is better.
This doesn't imply that 2024 can't be a down year for the S&P 500. Instead, it serves as a historical reference suggesting that 2024 could very likely yield a return of 7-10% even after a great year based on our understanding of market performance.
If you encounter someone strongly convinced that 2024 is destined to be a cooling-off year for legacy markets, click the link below to share this newsletter with them as evidence to the contrary.
This is exactly why Warren Buffet famously said, “our favorite holding period is forever.”
Bitcoin Thoughts And Analysis
Look mom, Bitcoin is doing nothing! As I said, I am watching this small pennant to see which way it breaks.
Altcoin Charts
For those who are new here, I share SETUPS and not SIGNALS. These are ideas that I am watching - if a certain thing happens, then the trade triggers. I am not telling you what to buy or when. I am showing you how I am watching certain charts and what has to happen for me to take a trade.
Boring, yes. Encouraging? Also yes. Why? Because we had RSI retest the blue descending resistance as support, which is something I have discussed a few times. There’s nothing to do here for me until ETH breaks out through descending resistance against Bitcoin - unless you caught the bullish divergence lower. That said, I am watching closely. This looks like it could be heading back for another test of resistance in the coming weeks.
Legacy Markets
As the US Treasury gears up for a record $42 billion auction of 10-year bonds, the financial markets are experiencing fluctuations. This significant event comes amidst efforts to manage the repercussions of commercial real estate losses and follows a period of volatility in bonds and stocks. The Treasury's upcoming auction is critical, particularly after a recent selloff and a preceding auction of three-year notes which saw unexpectedly high demand.
The stability of Treasuries is under scrutiny following strong economic indicators that led to a market correction and a reassessment of the Federal Reserve's rate cut timeline. Central bank officials have maintained a cautious stance, suggesting that rate reductions could occur later in the year, contingent upon further progress on inflation control.
The market is also closely watching the situation with New York Community Bancorp, which has faced a significant stock price decline and a downgrade to junk status by Moody's, highlighting broader concerns within the commercial real estate sector. Treasury Secretary Janet Yellen has assured efforts to bolster the financial system's resilience against these challenges.
This backdrop sets the stage for the next Fed moves, potentially easing financial conditions to support the sector. Despite the issues faced by New York Community Bancorp, a widespread banking sector crisis has not materialized. Meanwhile, global markets remain attentive to developments, with mixed reactions in European and Asian stocks and oil prices showing minimal movement amidst geopolitical tensions and growing US stockpiles.
Key events this week:
Walt Disney earnings, Wednesday
Fed’s Adriana Kugler and Tom Barkin speak, Wednesday
China PPI, CPI, Thursday
US wholesale inventories, initial jobless claims, Thursday
Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing on the Financial Stability Oversight Council annual report, Thursday
Pharma CEOs speak at a Senate panel on prescription drug prices, Thursday
ECB Chief Economist Philip Lane speaks, Thursday
ECB publishes economic bulletin, Thursday
US CPI revisions, Friday
Germany CPI, Friday
President Joe Biden hosts German Chancellor Olaf Scholz at the White House, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.1% as of 10:27 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures rose 0.1%
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index rose 0.4%
The MSCI Emerging Markets Index rose 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.0770
The Japanese yen was little changed at 148.01 per dollar
The offshore yuan was little changed at 7.2080 per dollar
The British pound rose 0.3% to $1.2632
Cryptocurrencies
Bitcoin fell 0.2% to $43,082.29
Ether fell 0.5% to $2,368.66
Bonds
The yield on 10-year Treasuries advanced one basis point to 4.11%
Germany’s 10-year yield was little changed at 2.30%
Britain’s 10-year yield advanced four basis points to 3.99%
Commodities
Brent crude rose 0.8% to $79.24 a barrel
Spot gold fell 0.1% to $2,033.47 an ounce
Ripple Ordered to Produce Key Financial Documents
Let's quickly recap to ensure this story is clear. Do you remember the ruling by Judge Torres, where it was determined that programmatic sales, other distributions (including employee compensations, bounties, and initiatives), as well as sales by Larsen and Garlinghouse, were not considered security offerings? However, institutional sales and fundraising for XRP were indeed classified as security offerings.
That’s the context for this new story.
On Monday, a federal judge granted a motion from the SEC, mandating Ripple to provide crucial financial documents from 2022 to 2023 and contracts concerning “institutional sales.” It's important to note that all of this is tied to the ongoing debate over whether XRP qualifies as a security. Ripple has been given a deadline of 5 days to produce these documents. Given my limited legal expertise, it's difficult to predict the implications for Ripple at this stage, but I'll be sure to provide an update here soon when experts weigh in.
Solana Pulls A Solana
Solana went down again. On the bright side, it seems to be the case that the time between each outage is widening. This time, the network went down for about 5 hours, which of course resulted in all transactions being unable to go through. Engineers were quick to push out a patch, but at the time of the crash, the root cause was unknown. It’s suspected the issue has something to do with a previous SMID (Solana Improvement Proposal). You can read the incident report HERE.
MicroStrategy’s Earnings
For 13 consecutive quarters, MicroStrategy has been steadily increasing its Bitcoin holdings. In January, the company acquired an additional 850 BTC for $37.2 million, bringing its total to 190,000 coins. With an average cost of $39,411 per coin, the cumulative cost of MicroStrategy's Bitcoin position is about $6 billion. Given this purchase in January, MicroStrategy is now on a 14-quarter streak, which will be officially confirmed in the upcoming quarterly earnings report. With Bitcoin hovering just above MicroStrategy’s break-even point, things are only just starting to get interesting.
Bitcoin $100K, Ethereum $8K, Solana $400: Bullish Predictions For 2024 With Tom Dunleavy
What to expect from crypto in 2024? Tom Dunleavy, Partner and Chief Investment Officer at MV Capital and former analyst at Messari, will discuss his very bullish predictions: from L1 chains to privacy coins, expected mergers, RWAs, stablecoins, etc. Join at 9 am EST!
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.
Interview with Tom was great!