Overbought? Despite Exceptional Year, Signs Point to Continued Rally in 2024
2023.12.19 05:16
- As 2023 concludes, global markets, led by the U.S. and Europe, are set for double-digit gains, defying earlier skepticism and paving the way for potential surprises in 2024.
- Despite concerns about an overbought S&P 500, historical trends reveal that overbought conditions don’t always lead to immediate declines.
- With inflation moderating and the tendency to avoid recession in an election year, the 2024 outlook seems promising.
Fear sells.
It sells because a Nobel laureate, through behavioral finance, has taught us that humans tend to weigh losses 2.5 times more heavily than gains. Consequently, the fear of a sudden collapse always lingers in an investor’s mind.
However, this fear-driven approach can lead to missed opportunities. The true skill lies in effectively managing the emotional impact of periodic market declines and adjusting portfolio risk during volatile periods – something entirely within our control.
As we approach the end of 2023, the stock market, with a few exceptions like China, is poised to close in double digits for both the U.S. (thus affecting global equities) and Europe in general.
With banks consistently raising bullish forecasts for the , and the skepticism of small investors who remain wary even after a +15-20% gain, one thing is certain: the markets in 2024 will once again do what they do best—surprise!
Corporate Insider Buy/Sell Ratio
Source: The Web
There’s one thing we can point out by looking at the image above. Recently, insiders have rushed to buy and this is usually a good sign for markets in the months to come.
Is S&P 500 Being Overbought a Bad Thing?
Looking at the recent performance of stocks within the S&P 500 overbought does not always lead to immediate declines. The months following substantial surges, like those we saw in November, often see additional rallies.
Overbought S&P 500 Performance
Source: Carson
Since 2024 is an election year in the US, there will be efforts to avoid recessions or any financial crisis as much as possible.
Inflation, the primary concern for markets over the last two years, appears to be continuing to ease. This might give Central Banks the chance to start thinking about cutting rates sooner rather than later.
In summary, the outlook for 2024 appears promising. However prioritizing risk control, especially for those who have been following my guidance throughout this year and have likely secured gains, remains paramount.
This is especially crucial as optimism begins to make a comeback.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
