The Recent Market Rally Has Broadened Out

Editor's note: Politics matter... But as we've covered in DailyWealth, they shouldn't drive your investments. Otherwise, according to Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – you might be missing out on a major opportunity. In this piece, adapted from the November 20 issue of the free Chaikin PowerFeed e-letter, Marc explains why a recent signal is good news for the stock market...

I'm glad we're past the big election...

After all the fear and uncertainty leading up to it, we can look forward to more stock market gains. We're past what I've been calling the "national distraction."

To be clear, my "bullish" view on stocks isn't based on the election outcome. It's what history tells us...

The folks at Bespoke Investment crunched the numbers. They looked at stocks' performance from Election Day to Inauguration Day – for every election year since 1936.

Over that time, the S&P 500 Index averaged a 1.5% gain. And it delivered a positive return roughly three-quarters of the time.

Notably, the numbers don't change much based on which party won the election. The average gain was 1.6% when a Republican candidate won. And it came in at 1.4% after a Democrat won.

I know that folks get excited about politics. But it's important to keep some perspective...

That's why I stay focused on historical numbers – like the ones I just shared.

And I caution folks against getting too caught up in all the political narratives and fearmongering in the media...

For example, as I told PowerFeed readers back in February regarding the election this year...

You can't just focus on the horse race. Sure, some find it entertaining. But it's a national distraction.

The simple reality is that there's a real opportunity forming in the market right now. Some investors will see it, understand it, and act on it.

Others will fall to the national distraction.

My point was simple...

You could miss out on some big profits if you get too caught up in the political drama.

History tells us that the stock market does great in election years. The average gain in all preelection years – over nearly 100 years – is 17%. That's almost double the annual average.

In fact, 2024 is still shaping up to be better than the average election year. The S&P 500 is up about 28% since the start of the year.

Meanwhile, the outlook recently improved for small-cap stocks...

We can see this using our Power Gauge system. That's a tool we use at Chaikin Analytics to gather a wide array of investment fundamentals, technicals, and more into a simple rating of "bullish," "neutral," or "bearish."

In the Power Gauge, we use the iShares Russell 2000 Fund (IWM) to gauge the health of small caps.

And in early November, our system flipped from "neutral" to "bullish" on IWM. The fund had previously spent just about all of October and the first week of November in "neutral" territory.

Meanwhile, the Power Gauge currently gives 602 of IWM's holdings a "bullish" or better rating. And 326 stocks in IWM have a "bearish" or worse rating.

Put simply, our system sees far more stocks with upside potential than downside potential in IWM.

That's great news...

For one, it means that small caps are likely to deliver more gains in the coming months.

Keep in mind, small caps have been underperforming large-cap stocks for a long time. Over the past two years, the S&P 500 is up 52% versus a roughly 32% gain for IWM.

In other words, we're likely to see some major gains in small caps as they catch up to their larger counterparts.

Of course, we'll see plenty of volatility as well. Stocks don't go up in a straight line over time.

But the larger point is that the recent rally has broadened out. So, with the election uncertainty behind us, make sure you stay focused on the market.

Good investing,

Marc Chaikin

Editor's note: In the past few weeks, Americans have been distracted by Donald Trump's election win and the market's surge to record highs. Meanwhile, Marc has watched a powerful market signal quietly flash...

Now, he says a critical postelection surprise is headed straight for U.S. stocks. And your ability to do well with your investments in 2025 depends on one critical decision you must make before December 23. On Tuesday, December 17, tune in to his free online broadcast for all the details... Reserve your spot here.