Stocks look ready for a breather: StockTradersAlmanac

US equities may be poised for a breather after a strong last leg of its rally, market guide Stock Trader’s Almanac said in a note on Friday.

Historically, midyear Russell Index and institutional fund portfolio rebalancing, coupled with the Q2 earnings season and the start of the second half of the year, have made July the best month of the third quarter.

Within this, the Almanac expects the ongoing bull run to continue its upward trend and reach more new highs by the end of the year. However, the strong gains so far in 2024 “may have the market out a little too far over its skis,” it added.

NASDAQ Composite 12-day midyear rally, which spans the last three trading days of June through the first nine trading days of July, has previously likely been driven by the rebalancing activities and Q2 earnings reports occurring in late June and early July, Almanac noted.

“After this run, which usually peaks out near midmonth, a mild pullback in the 5-8% range would not be surprising,” the note states. This mid-year rally is referred to as “Christmas in July,” Stock Trader’s Almanac noted.

The market guide pointed out that a bullish election year combined with a significant technological macro trend from generative AI and related industries have driven the market higher than expected. They suggest that this AI could be the "culturally-enabling, paradigm-shifting technology" that propels the next phase of their 2010 Super Boom Forecast.

Their updated Election Year Seasonal Charts for the S&P 500 and NASDAQ indicate that the 2024 market is following the trend but is significantly above the levels of previous election years and other seasonal scenarios. Currently, the S&P 500 is even 5 percentage points above the most bullish Top Q1 Election Years setup.

“The market has already reached and surpassed the 8-15% level of our 2024 Annual Forecast Base Case projection,” Almanac continued. “While this brings our Best Case forecast of 15- 25% gains for 2024 into play, the market looks like it’s due for some mean reversion.”

Unless something dramatic occurs during this unprecedented Presidential Election debate or any major surprises arise in the next two weeks, Stock Trader Almanc’s analysts expect the midyear rally to drive the market higher into mid-July.

Beyond that, the market may become vulnerable to election campaigns and political missteps, Fed commentary, disappointing economic data, and the usual Summer Market Volume Doldrums.