Start of the year 2024: The real reason behind the correction.

Last Updated: 4. Januar 2024By

The correction at the beginning of the year has made it clear to us: 2024 will not be an easy year for the stock market. It can very well be a successful year for the stock market. The seasonality speaks for it, according to which US election years have often been very good years in the past.

But the path there is likely to be extremely volatile. I’m not saying we will experience a crash in 2024. But the party times of the seemingly endless winter rally of 2023, where we saw 9 consecutive weeks of gains, are over. The correction at the beginning of the year should not worry us yet. But we must consider two factors.

Wall Street: Large investors wanted to sell in 2024 for tax reasons The first factor – and the reason why so many stock market investors were caught off guard this week: Normally, the beginning of the year is a good time for the stock market. Many people receive fresh capital in December, such as Christmas bonuses, cash gifts, or bonus payments.

This fresh capital usually flows into the markets at the beginning of January and provides additional buying power, which often drives stock prices up. But not in 2024. The reason: at the end of 2023, many large entities in the US did not want to sell after the mega winter rally in order to avoid paying taxes on their profits in 2023. They waited until the beginning of 2024 – and then immediately took their profits.

That’s exactly what we have seen in the stock market in recent days. The current price losses are simply profit-taking, but they had been building up for weeks as professionals were waiting for the end of the year. So far, so good. But there is a seasonal factor that we must now pay attention to.

Pay attention to the „First Five Day“ indicator now! A surprisingly reliable stock market indicator for the performance of a year is the performance of the S&P 500 after the first 5 trading days. On Wall Street, this indicator is called „First Five Days“. In the past 4 years, this 5-day indicator has been correct every time.

Even in the horror year of 2022, the „First Five Days“ indicator accurately predicted the poor stock market year. But historically, the indicator has been more reliable in predicting good stock market years than bad bear markets. Since 1950, the success rate of the „First Five Day“ indicator for good stock market years has been around 85%.

Conclusion: So, we will have the second indicator for the direction of the stock market in 2024 at the beginning of next week. The first indicator, based on historical seasonality in US election years, is positive. But one thing is already clear: we are seeing a noticeable weakness in the major high-tech stocks. Even if 2024 should be a strong stock market year, the rise will likely be driven by other stocks. Choosing the right individual stocks will be crucial in 2024! Simply investing in ETFs will no longer be enough.