The market’s newfound optimism
The recent market rally, spurred by the US presidential election results, has sparked a wave of investor optimism. This leads to questions about the market’s potential upside, particularly before the end of 2024.
The volatility reset
Prior to the election, some investors reduced their risk exposure due to heightened uncertainty. However, as the election results became clearer, risk managers began to reassess the situation. With optimism for growth increasing and volatility levels significantly reduced, they gave the green light for increased risk-taking.
Institutional buying on the rise
Institutional investors are actively seeking opportunities to add to their equity positions. Their buying activity has further fueled the rally, as they seek to capitalize on the favorable market conditions.
The power of seasonality
It’s important to note that the post-election rally isn’t just a random occurrence. Historical patterns, or seasonality, play a role in shaping market trends. Typically, the period between a US presidential election and the subsequent inauguration sees a rally in equities. See the chart below from Goldman Sachs. This year, the seasonal trend is aligning with the post-election optimism.
Conclusion
The combination of a volatility reset, institutional buying, and favorable seasonal trends has created a perfect storm for US equities. While it’s impossible to predict the exact peak of the rally, the current momentum suggests that there’s still room for further upside in the coming months. As always, it’s crucial to have a well-diversified portfolio and a disciplined investment strategy.
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