Trump's Bump in the S&P 500 is the Side of Extreme Rarely Seen, But That's Why it's Needed
The S&P 500 continues its bull market run from the October 2023 lows. While there are claims about the market being over-extended, the bull move does not seem ready to rest. President Trump has announced numerous outside investments in the US. An optimal seasonal buy window is approaching. Technically, the S&P 500 uptrend is still intact.
Is this a great way to start 2025?
With new leadership arriving after Inauguration Day in the US on January 20, a whirlwind of changes has occurred, with plenty more to come. With a mandate from the American people, President Trump has been assigned to deliver on his campaign promises, one of which was to strengthen our economy.
In December, Trump announced a US investment deal with Masayoshi Son of SoftBank for $100 billion over the next four years to support AI advancements in the US.
Before he was sworn in as President, he made a deal with Damac Properties, controlled by Emirati billionaire Hussain Sajwani. The deal is to invest at least $20 billion to build data centers in the US. Trump desires to be the world's dominant Artificial Intelligence (AI) leader. Requiring land development, electricity, water, and compliance regulations.
The day after becoming President, Trump announced another $500 billion private sector AI deal. Investors from OpenAI, SoftBank, and Oracle are forming a joint entity known as Stargate. President Trump announced that this record-breaking AI investment will create an additional 100,000 new jobs in the US. He campaigned to lower unemployment and is working on fulfilling that pledge with other new investments in AI.
But why is this good for the S&P 500?
The weighted S&P 500 top stocks in the index are technology-related. The advancements of AI and the potential to become the world leader in AI will profoundly impact the S&P 500. As the economy improves, with more people finding jobs from these companies, we could expect to see tax revenue increase in the US, perhaps lowering our deficit and stabilizing social security funding.
Technical
Source: Barchart
The weekly S&P 500 futures chart shows the resiliency of the bull market since the end of the last bear market lows in October 2022. Since then, the market has exhibited the classic higher highs and higher lows. Can this trend turn? Absolutely! But trading what you see instead of what you think usually makes more profits.
Source: Barchart
Another tool used for determining trends is the moving average. While the S&P 500 and Nasdaq 100 have slipped to the bottom of the rankings, both show positive results for all major moving averages, indicating a bullish trend.
Seasonal Pattern
Source: Moore Research Center Inc. (MRCI)
Seasonal patterns can be used for market screeners. Once identified, a trader could consider the current trend. The odds of a successful opportunity increase if the seasonal trade is in the same direction.
The chart reveals MRCI research for the past 15 years (blue line) of S&P 500 activity. Once the 15-seasonal pattern is identified, the research is refined to find optimal seasonal windows (yellow box). For example, MRCI has found that the S&P 500 has closed higher on approximately February 16 than on January 28 for 14 of the past 15 years, a 93% occurrence. During this optimal window, traders may buy and hold through the window or trade in and out of the market during the optimal buy window.
Source: MRCI
The above table of hypothetical past trades reveals that two of the past 15 years did not have a daily closing drawdown.
Another lesson from using seasonality is that mindlessly buying or selling an optimal seasonal window could result in significant drawdowns (Worst Equity Amount column) before the move turns profitable. By using additional technical or fundamental analysis, a trader could time their entry closer to the extremes of the seasonal window and reduce some of the drawdowns.
As a crucial reminder, while seasonal patterns can provide valuable insights, they should not be the basis for trading decisions. Traders must consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading choices.
Markets to participate in this opportunity
Equity traders may use the exchange-traded fund (ETF) SPY to participate in this opportunity. At the same time, futures traders could use the mini-contract ES or the micro-contract ET. There are many more vehicles to trade the S&P 500, but these are among the more popular. Also, the S&P 500 is the most liquid index market to trade—allowing for safer executions of your trades.
In closing…..
As we look ahead, the S&P 500 offers a unique opportunity for traders to capitalize on its continued bull market momentum. This market is positioned for potential gains with robust technical indicators, historical seasonal patterns, and groundbreaking economic developments. The recent influx of record-breaking AI investments, championed by President Trump's administration, reinforces the US's ambition to dominate the global AI landscape and fuels the tech-heavy S&P 500's growth. The alignment of these developments with an optimal seasonal window, as shown by the MRCI research, further strengthens the case for bullish activity. With a 93% historical probability of higher closes from January 28 to February 16, the conditions are primed for disciplined and strategic traders to take advantage of this window of opportunity.
There's no better time to seize the potential of this dynamic market. The S&P 500 shows strength and resilience, underscored by its steady uptrend and bullish signals from major moving averages. By aligning your trades with the powerful confluence of seasonal patterns and the transformative impact of AI investment, you can position yourself for success in this thriving market. Whether through SPY ETFs, mini-contract ES, or micro-contract ET, the S&P 500 offers a liquid, accessible, and potentially lucrative platform for traders ready to act. Don't wait—take this opportunity to ride the wave of innovation, economic growth, and a market on the move. Make 2025 your year to thrive in the markets!
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