The action over the past week has been extremely difficult to navigate, with a sharp reversal lower now completely retraced in the S&P 500. The S&P 500 experienced its first 5% pullback since April on November 20. The recent run was longer than average but not unprecedented, ranking as the 34th longest since 1928. For a recent perspective, it was the fourth-longest stretch in the last decade, just shy of the August 2024 – February 2025 run and far behind the November 2020 – September 2021 and the June 2016 – January 2018 streaks.
At the same time, this recent decline has pushed the Ned Davis’s Trading Sentiment Composite to its lowest level since April of 2022. This pullback has dented but not broken the bullish message from various models. If we were to add the oversold condition, tendency was for the market to bottom before Thanksgiving, which we saw, and then a quick 4-day advance, therefore the bullish message could imply conditions remain in place for a year-end rally. It has been incredible to watch lately as the S&P zeroes in on key technical levels with apparent laser focus. The challenge, of course, has been the market’s habit of briefly violating these key levels right before sharply reversing the other way. It has done just enough to cast doubt on the continuation of the advance since the April lows. The market needed to string together multiple strong days in a row to demonstrate the short-term downtrend had been broken though. Even when we are prepared for it, the market still finds a way to throw a curveball. Last week’s multiple day advance seemed to snatch the equity markets from the jaws of decline. It has been treacherous to say the least.
Since the market, as characterized by the S&P 500 has seemed to almost bounce “mechanically” between logical chart support levels and resistance tops, it forces me to wonder how much of these volatility moves are almost completely driven by computers and not by generally well-known market measures, like Graham & Dodd valuation or Warren Buffet style, as examples. This is one of the big things that seems to make our job difficult. The economy says this, the earnings reports and projections say that, but the action of the market seems to be listening to totally different music! In the short run this often occurs, and therefore one is forced to pay attention to their instruments, much like a pilot flying the dark or the fog. Just so you know, my instruments told me that there was going to be turbulence on October 10th, and they registered clearer skies on November 24th. Now, this being said, please remember, instruments can change at any time, so this new clear weather could hit turbulence again at any time, so don’t think this means necessarily that we are now in the land or unicorns and rainbows all of the sudden. Last week was undoubtedly strong. While Monday’s session was less robust than the averages implied, 56% of NYSE operating companies still advanced. That day was bookended, as well, by almost a 90% upside day on Friday before, and another strong one-sided session Tuesday and Wednesday. Now I watch to see if the old highs are surpassed or the markets turnaround and go into another dive. Here is what we saw last week:
To take this and make the time period broader and take into account the time since September with this short five-day period (see above) annotated in the chart. Please see below:
I bring this short-term chart analysis up for the exact reason that I mentioned the instruments and the fog above. Prematurely betting on a low can be punishing. While the bounce of the last week has been impressive, it still took the S&P 500 until the final 15 minutes last Tuesday to trade above its high from the Thursday before. While that is a big step in the right direction, the SPX needs to now follow through higher to help produce a more definitive break. It has attempted to climb above the 6750-6775 resistance zone on four occasions this month but has so far stalled out each time. If a major bottom has been made and the market will now proceed to rally higher in the weeks ahead, then we should see the S&P break though this area. If not, another strong reversal from here keeps a path open to lower prices and another leg down.
The positive sign that has emerged recently in breadth improvement. The underlying problem that seemed to be bothering the markets in this year’s advance was a lack of breadth, and the move higher being concentrated in the large index leaders. The recovery that began last week seemed to reverse this and it seems as though many companies and many industries have now joined the party. This is the most positive sign that I could have hoped for. Here is the picture of this breadth move in relation to the Russell 3,000 index, a very broad market index:
It might be difficult to see in the above chart, but the yellow highlight in the bottom portion shows that the percent of companies above their 20-day moving average price has been in a decline (less and less positive breadth) since mid-September, and in the last week this short-term downtrend in negative breadth has been broken and a wider advance now appears underway. If we are to look at the month of November, while November might not have been great, the return during Thanksgiving week was one of the strongest in history. According to technician Wayne Whaley (as in the Whaley Breadth Thrust), there have been 15 other occasions since 1930 when the S&P 500 was up at least 2% during the week of Thanksgiving. The index was higher every time 13 months later for an average gain of 22.9% compared to 7.39% for the same 13 months for the other 80 cases when Thanksgiving returns were less than 2%. So small sample size or not, history is on the market's side. Now that the markets have shown pretty good strength into the end of November, it could be time for a bit of digestion before a final push into December. Here is the cycle composite that I have going back to 1928. I often show this, but it is nice to have an update to see what we have right now:
The market then ignored the seasonal weakness common in August, September, and October, with the S&P 500 logging 21 record highs from August 12 to October 28. The combination of Q2 earnings season being one of the best in years and the Fed restarting the easing cycle likely overwhelmed the seasonal message. The fact that many traders had not fully gotten back into stocks after the April panic probably contributed to money coming off the sidelines after mild dips. The market, so far in 2025 has followed the 4-year cycle most closely. If we zero in on the 1-year cycle, it was true to form with a decline into November 20th. Now we will wait to see if it can follow the normally scheduled program by rallying into December. Strangely enough, December tends to be the second worst month of the year. But…. We might experience a bit of digestion after the big Thanksgiving meal the markets ate last week before a push with old Saint Nick. Here is the 1-year cycle. Note that I have highlighted with a yellow dot the November 20th low on the cycle chart:
The list of factors to watch on a rebound is long and varied, but the probability of a rate cut in December and possibly more into 2026, labor market conditions, debt issuance, and how quickly the pessimism reverses to optimism, are a variety of things that could be needed. The recent selloff has had more of a “rotational feel” to me than indiscriminate selling. As a result, advance/decline volume has not been particularly one sided, with the worst day being November 20th’s downward flush. If a continuation of the rally were to continue through the coming weeks, the advance/decline numbers should improve, and many other indicators could trigger. So far, this is what the year has looked like. I bring this up as it is clear that it has been some time since the water of the market got cold and got cold rather quickly.
Looking toward year-end
From here, the first half of December has tended to be seasonally weak. Since 1950, the S&P 500 has gained an average of 0.1% from November 30 – December 15, the sixth-worst return of the 24 half-month periods. The second half of December has been the strongest half-month of the year on average, with a mean gain of 1.4%. The conclusion of tax-loss selling and dearth of stock offerings often results in the Santa Claus rally that begins five trading days before Christmas, on average. According to Mark Newton of FundStrat, he believes that the next couple of weeks could be a bit topsy turvy until this December 15th date. At that point, he feels that the markets could follow the normal seasonal push upwards As can be seen in the chart below, the first half of December is normally weak, and the second half quite the opposite! December has not been as strong as November over the past several years. In fact, it has surprisingly been the 2nd worst month for stocks going back to 2010, trailing only September. Yet, as we have witnessed in recent months, seasonal returns can be random and don't necessarily allow us to predict the future with any degree of certainty. Whether the market follows December's seasonal tendencies this year could depend on anxiety over the December 9-10 FOMC meeting. Investors now expect the Fed will cut 25 basis points. The Fed blackout period started on Saturday, so any negative news will not be saved by dovish central bank comments.
To get just a little bit more myopic on the action right now in 2025, I wanted to reflect on just how negative the market was from October through November 20th. As seen below, the relative strength index of the markets went down to the lowest levels they had seen since the Tariff Tussle. This doesn’t mean that markets need to turn, but they were really quite oversold before the Turkey Bounce we saw this last week.
This week starts the final month of the year. With it comes lots of talk of Christmas shopping during Black Friday (kind of really Black Week), and the Fed meeting on the 9th & 10th. The list of factors to watch on a rebound is long and varied: the probability of rate cuts in December and early next year, labor market conditions, the Supreme Court tariff ruling, Q4 and 2026 earnings guidance, A.I. debt issuance, and how quickly pessimism reverses to optimism, just to name a few. Whichever the case, we will attempt to fly by our instruments and hopefully seasonal strength will prevail. Make sure you have a safe time at your company Christmas party but don’t start that Dry January too soon!
- Ken South, Tower 68 Financial Advisors, Newport Beach
-
Get Ken's Weekly Market Commentary Delivered To Your Inbox!
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Investing involves risks including possible loss of principal.
The Standard & Poor's 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Nasdaq-100 is a large-cap growth index. It includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
Data sourced from Bloomberg (2025).
Stock investing includes risks, including fluctuating prices and loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability, change in price, call features and credit risk.
Government bonds are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
LPL Tracking #832434