2024 Stock Market Predictions: Reliable Signs of Growth and Warning Signals for a Potential Crash

We have looked for patterns to try and see what the future has in store for us for thousands of years. From the stars and planets to cards and palms, these practices have leaked into the modern day. The historical patterns and trends can be used to predict how the stocks will change going forward. Two such examples point to a boom in the market with another suggesting a crash. Which is reliable- and which isn't?

One of the more prominent views on where the stock market will go this year comes from a theory called the presidential cycle, that says stocks are likely to do well during US election years. This is somewhat supported by history. In the 24 election years between 1928 and 2020, the S&P 500 delivered positive returns in 20 of them.

There is also another pattern that may encourage investors. The S&P 500 has existed in its current form with 500 companies represented ever since 1957. Every time the index dropped 15% one year, it went back to normal the next year and continued the upward trend with a solid gain the third year. Since in 2022 the S&P dropped 19% and went up 24% 2023, we should see a continued upward trend this year as well.

While those patterns promise easy waters ahead, another suggests otherwise. This one looks at the US M2 money supply, which essentially is all the cash people have on hand (checking accounts, savings, Certificate of Deposits, and money market accounts. Going all the way back to 1870, M2 has declined by 2% or more four times before. In each case, a major economic recession has followed close behind. And when the economy goes south, the stock market should too. This is important because the M2 money supply is dropping for the first time since 1933.

Personally, I think there could be a reason to view this as a net positive future: 2 to 1 isn't all that bad. From my perspective, the two historical patterns that point to a rising S&P 500 are useful while the M2 money supply trend is essentially useless. The underlying premise behind the election cycle theory goes that the stocks rise in election years because the sitting president tries to bolster the economy in order to boost their approval ratings before elections end.

Regarding the pattern where S&P falls, goes back up, and rises even more, there should be a solid reason behind it as well. Many studies have found a higher momentum effect with stocks where past stocks that rose because of this trend continue to rise. The average bull market also lasts 3 years. If the S&P 500 begins a new bull market in the year after a major-sell off, we should expect a rise.

However, I do not believe the M2 money supply decline is something to worry about. Physical cash has lost its importance over the years as credit and digital payments have taken the stage.

Obviously, there are no guarantees; history does not always repeat itself. I think it is more likely that the stock market will rise in 2024 than not, but it is not a promise. Investors who look for long term will not be concerned about the stock market in 2024 alone; eventually, most stocks rise, given time.