Amid the gloom here and abroad, the U.S. stock market is holding up just fine

Published Mon, Nov 27 20238:28 AM EST

Just back from a week in the Caribbean island of Antigua, where all of the contradictions of life in 2023 were on full display: lots of spending, and lots of worries about spending. If people are worried about a downturn in the economy, it certainly wasn't on view here. Antigua is heavily reliant on tourism (about 60% of GDP), and like all Caribbean islands took a big hit during Covid , but our hotel was full, and the island's legendary beaches were crowded with Brits, Americans, and Canadians. Antigua was part of the British Commonwealth until it became independent in 1981, so the clientele in our hotel was a bit more skewed toward the British than the Americans. Regardless, the Brits seem as pessimistic as the Americans. One London property developer standing at the bar was utterly miserable, despite sitting on one of the finest beaches in the Caribbean. His home had recently been burglarized (he and his wife were tied up while the thieves helped themselves) and he said business was terrible in England. "We should never have left the EU," he said. Yet there he was, in a tony hotel in the middle of the Caribbean, an eight-hour flight from London, downing one gin and tonic after another. Worries about a slowdown ahead Judging by the conversation at the bars, the place was full of private entrepreneurs and a smattering of financial advisors. One British advisor was patiently explaining to an American why his firm had much-reduced exposure to European stocks, and even American stocks, under the theory that inflation, the rally in global yields, and shocks from the China-US fallout, Russia-Ukraine, and Israel-Hamas, were going to reduce global returns for years to come. I dislike getting involved in debates on the stock market when I am enjoying an old-fashion rum punch at a beach bar in the Caribbean, but I couldn't resist interjecting. "And yet, the U.S. stock market is having a terrific year, and this November is shaping up to be one of the best months in years," I said, staring at my rum punch rather than making eye contact with the advisor. He stared at me, obviously annoyed that I had interrupted his monologue. "We'll see how the coming slowdown plays out," he said, and turned back to his discussion. The coming slowdown? The S & P 500 is up 19% this year. November is living up to its reputation as the strongest month of the year: I's already up 8.7%, the biggest monthly gain since July 2022, and the fourth-best month of the last 10 years, according to Forbes. The index has been up more than 8% in November fewer than 10 times since 1928, according to Bloomberg. More may be coming: the last week of November tends to be the strongest week of the month, Ryan Detrick, chief market strategist at Carson Group, has noted. History tells a different story I know there are plenty of skeptics who don't want to do market timing based on "seasonal factors" (I hear you!) but seasonal factors have been playing out remarkably well this year. Detrick has noted that years that start off well tend to exhibit weakness in the third quarter, but then generally move higher into the end of the year. That's exactly what has happened: the S & P 500 was up 15% in the first half, down 3% in the third quarter, and up 6% so far in the fourth. We'll see if that continues. Decembers in a pre-election year are typically strong: It's an up month 72% of the time for an average gain of 2.9%, Detrick has noted. If I am giving a lot of space to Detrick, it's with good reason: He has been bullish and right this year, part of a small group (Fundstrat's Thomas Lee, Oppenheimer's Ari Wald, Webush's Dan Ives, BMO's Brian Belski, and Bespoke's Paul Hickey) that has been generally right, despite dips along the way. I wish Detrick had been with me when I was standing at the bar with that British fund manager, trying to convince the hapless American that some kind of drastic slowdown was coming. I should have quoted Detrick to him: "There hasn't been a recession in a pre-election year since WWII," he said in a recent note to clients. I'm sure the fund manager was convinced a recession may not have happened this year, but it surely was coming in 2024. Right now, the soft-landing crowd is still winning. "Sure, things are slowing down some, but we like to say they are normalizing, not slowing down ... the consumer remains strong and incomes are growing at a very healthy clip," Detrick said. As for earnings, which are the lifeblood for the stock market, forward earnings estimates for the next 12 months stand at record highs. Recently completed third-quarter estimates have come in at up 7% so far, according to LSE, far outpacing the predictions that earnings would be flat to down. And profit margins, which were widely expected to slip this year, remain historically high. That bodes well for 2025, but first let's get through December. Detrick is still predicting a year-end rally: "I've added that last prediction [a year-end rally] ahead of time, but we do feel confident we will see a chase into the New Year." Had I made that prediction, I'm sure the British fund manager at the bar would have slammed down his French chardonnay and stormed off to go on a sunset cruise. Too bad he didn't: After 20 minutes of his "the end is near" soliloquy, his hapless American friend looked like he wanted to run to his room and wire his broker to sell everything. The poor guy looked like the British property developer I had been with the day before, miserable and worried. He did the same thing the property developer did: ordered another gin and tonic.