Stocks (^DJI, ^IXIC , ^GSPC) have been on a roller coaster ride, with dynamics constantly shifting due to various factors. Seasonal patterns, Federal Reserve rate expectations, corporate earnings, inflation data, the AI technology boom, and more have all impacted market sentiment. In this election year, investors are left wondering how to gauge the trajectory of markets and how they have historically performed during similar periods. Should investors adopt a bullish or bearish stance, and what do market movements signify for the overall state of the economy?

On today's episode of Stocks in Translation, host Jared Blikre welcomes Hirsch Holdings CEO Jeff Hirsch and Yahoo Finance Senior Producer Sydnee Fried to discuss these market dynamics and offer insight into how investors should navigate trading in these ever-changing conditions.

This post was written by Angel Smith

Video Transcript

Welcome to stocks and translation, our essential conversation cutting through the mayhem, the noisy numbers and the hyperbole to bring you the information you need for your portfolio.

And today I am joined by America's favorite producer Sidney Fried, along with Jeff Hirsch, he is the CEO of Hirsch holdings.

He's also the editor in chief of the Stock Traders Almanac publication.

His father launched this year uh the year he was born and this is gonna reveal many insights about behavioral finance and market signals.

If you've heard of the Santa Claus rally, this is where it all began.

So stay tuned.

Um I wanna start with where we are in the markets and uh it's been kind of a head scratcher for some people, but maybe you could introduce some of your work about seasonality and how that relates to how you see the market and what you're seeing right now.

Well, one of the things that Yale my father discovered uh was actually first really published in the 87 almanac, 86 was the best and worst six month switching strategy.

A lot of people talk about sell in May and go away.

That's a whole other story there.

I've said, you know, you gotta buy in October to get your portfolio sober to sort of counteract that.

But here we are in June.

Um and we've had our seasonal Mac DC signal, we use MAC D um which is a technical indicator to, to improve the entries and exits in and out of the best month.

So basically, most of the market's gains have been made from no November to April and pretty much sideways from May to October and it's tracked pretty well the last several years.

Uh and we're also in an election year.

So we've got this conversion of the four year cycle and the best and worst six months and it's looking a little, you know, extended from my vantage point.

We also, you know, we have our five disciplines.

It's seasonality, of course, our roots, our foundation, uh fundamentals, technicals, monetary policy and uh sentiment.

So right now, um sentiments high though that can stay high for a while.

Um as a contra indicator that it tends to be used as it's really only great when it's negative when there's a lot of bears.

Otherwise it can stay.

I mean, for through 21 sentiment was through the roof and the market just ripped higher right through it.

Um Technically, we're looking a little bit, you know, struggling to toy or at least extended.

I don't see anything sinister coming in here.

Fundamentals uh usually stalled a little bit.

Yeah, it's a, you see a conversion of, of all of the different tactical fundamental indications with the seasonals.

Um, but it's still a very strong year.

I mean, the, the best six months was up, double the historic returns.

We are tracking, uh, what we've, you know, put out there as a, as a sitting president market pattern.

And in this year, you know, we've got two people who that are known entities, politics side Wall Street is prepared to adjust with whoever they get in there.

And we've dealt with both of these people before.

So it's kind of uh reduced the uncertainty factor.

So we see some chop right now.

Um We're gonna get some disappointments out of the, of the fed.

We're gonna give a, a, an economic reading that might be like the, we're gonna get into all of this.

Um I said, I can tell you a burning question.

I wanted to take a step back and talk about seasonality a little and how often some of these indicators and seasonality actually come to pass, like the January effect.

Like, how often is that true?

Right.

Um You know, they do shift a little bit, a lot of them come happen much more.

People are willing to admit.

There's a lot of skeptics about seasonality.

The January effect gets confused with the January barometer.

The January effect is a tendency for small caps to outperform large caps in January.

Whereas the January barometer is as January goes, so goes the year and that's one.

So for the market overall.

So one is very specific small caps and others for the market overall.

But I mean, like how do you have you back tested these things?

I I know of some back test theory, some backing that's been done.

But how about you?

I mean, the best six months is the only proven black box system out there.

There was a book in um 2008 technical analysis, book evidence based technical analysis written by David Aronson who's part of the CMT and and Brew College and they tested 6000.

It was 60 200 different black box systems against the scientific method, meaning disproving the null hypothesis.

So that were the results, the result of chance and had no predictive power often failed when we picked that book as our best best book of the year back.

And I think it was 08, if memory serves, we asked them to put the best six months the binary by the last trading day of October sell the last trading day of of April versus the other way around.

And unlike any of the other 60,000 plus systems, this was the only one that had predictive power and the results were not the result of chance.

Uh I mean, it really interesting that that's what seasonality that be kind of builds that alpha into the system.

Um I've, I've seen studies I think this was done by IBD back in the way.

But don't quote me, that seasonality accounts for up to one third of the price action.

So if you, you figure like the S and P 500 you can look at factors, you can look at different quant factors.

Uh but seasonality itself, which is, you know, where we are in the year contributes up to one third of the price action.

But that also means that it doesn't work two thirds of the time.

So what does it mean to you?

For instance, this year, I know April usually strong in May week, we had to reverse this here.

So what do you do with that?

Um Well, we put out some, we did some studies on that and it's definitely a concern um for us, but we've had so much strength coming in, we had the five month run in negative April and positive May.

And what we've seen is that the market tends to, to struggle like Q three is, is uh a weak spot.

Um You know, so that down April the best month for the dow since 1950 just a general, you know, known bullish month, it is a concern and this is what this is what plays into our outlook for some chop right here.

Um You have the underlying sitting president, um you know, in the last several months of election years in general being bullish uh only down 22 times in the last, you know, 70 years since 1950.

Um So down April has us cautious.

Uh, the election cycle has us bullish.

Uh There's this a, you know, fundamental macro tech boom with A I, that's pretty bullish.

We've got some technical supporting us with NASDAQ, you know, made a new high finally broke through the 21.

Um, you know, November 21 highs.

Uh that's looks like a nice support level.

Um There's a lot of, I mean, the economy is resilient.

Uh The jobs, you know, a number came out was pretty strong.

I know that upset everyone that's looking for the cuts.

We were never in that 67 cuts camp.

So, so, so just let, let me ask you, let's cut through because sometimes when we talk statistics, all the seasonality, not everybody understands it, statistics, statistics can get a bad rap.

How do you make sure you're not like over using the seasonality over, over fitting this and kind of make sure your results are relevant to what is, what is happening.

I think if you, if you keep it, no, I think I know when you try to do it on too short of a time frame, that's when you get messed up.

So should employ these methods.

Not they sh be careful with it.

Don't expect it just because it says in the almanac that this day is up, you know, 85% of the time does it, you know, look at some other factors, tactical fundamentals um before you make that trade just based on seasonality alone.

But, you know, over the long haul, um when we, we do a lot of like sector swing uh setups for um you know, stock sectors and even commodity related sectors with a lot of, a lot of it with ETF S, you're looking for the underlying stock or market or, or, or sector ETF to be tracking the seasonal pattern before you get, getting into it.

So you wanna see some, a little bit of, you wanna see it actually fitting, you know, and then you're looking for a technical set up or, or some other underlying reason.

Um There might be something in the news whether, you know, it might be gold short season, but everyone's buying gold, it's up.

So you're not gonna go short in gold or gonna go and bearish on gold and with the whole market, it is tracking the four year cycle um so closely, it, it, it makes me a little nervous like it's, it's gonna end at some point.

Um It always ends, it always starts over cyclical cycles.

It's the theme of the show.

So, uh yeah, you gotta make sure it's tracking closely to the seasonal pattern.

I think that's the key and be careful with the real short um time frame, seasonal.

Well, I neglected to mention in the open that this episode is brought to you by the number 1.5.

That is the number of Federal Reserve cuts.

The market is pricing in by December.

We're gonna talk about that in a minute.

I wanna get to our word of the day, which is seasonality.

And first, let's start with the definition.

This is according to investopedia, seasonality is a character of a time series which could be stock prices in which the data experiences regular and predictable changes that recur every calendar year, any predictable fluctuation or pattern that recurs or repeats over a one year period is said to be seasonal.

And I should add that this is a different concept than cyclic cyclicality.

And I am personally guilty of conflating the two, I will say, uh, seasonals when it's really cyclical.

But I'm just wondering what is seasonality mean to you, Jeff means everything.

All right, it's your paycheck.

It means, uh, my livelihood, my business.

Um, to me, it's just, you know, really understanding what makes, uh, the market of the world tick, what makes people tick.

You can see these, these behaviors.

I'll give you a little example.

Here's a little story kinda from, uh, when I first started working for, for my father full time when I said, you know what?

Uh, all right, I'll come work for you.

I want a business card and a title and a, and a, you know, a salary, whatever.

Um, but we were sitting around the table, uh, conference.

We had some other writers uh and analysts there.

And um yeah, we were looking at the the the monthly cash flows where you see this, you know, it used to be the last day of the month.

And the first four of the of the new month were the monthly five day bills where all the markets game portfolio rebalancing kind of getting cash flows in and out of um the market.

Um And we saw this midmonth spike because I was one of this is one of the things I used to run by hand.

I used to underline the daily moves and barons with a red pen and a little short ruler that I still have and then added up on an adding machine with a graph paper back in the eighties and nineties.

No, just, you know, a pencil and, and my father had AAA proprietary way of examining the monthly, you know, trading days.

So we see this mid month spike what's going on here and we've, we had the uh the understanding that that's the payroll deductions going into the mutual funds and mutual funds are long only pretty much they gotta put it into the market.

So it's the the either bi monthly or every two week payroll deduction being injected into the market creating um this, this change in season out.

So that's why I love it that you can see what makes the market tick.

I mean, and they talk about the Algos and, and, and, um, all the, you know, high frequency trading minute by minute, second by second, but they're programmed by humans.

There's biases in there.

I know it's per, it's not, uh, you know, it's, it's great.

It's, it's, you know, faster and awesome, but it's still, and, and the thing that if, if you look at the book, I know you're familiar with it, there's the, um, intraday trading patterns to the back of the book, which was the half hourly moves.

Um And to me, I find it amazing that despite all this HFT and Algo trading those patterns still tend to work where you see that lull around 2230 the rally to the close, you still gotta go to lunch and people still gonna need their, their coffee at, at, you know, just after lunch at two o'clock, which is lo so that's what I love about it that you can sort of see how the world what makes it tick.

Yeah, we gotta take a quick break here.

I mentioned briefly before this month, this episode brought by the number 1.5.

Why 1.5?

That is the number of fed rate cuts of 25 basis points apiece that are priced into the market through December of this year.

They got a mid month December meeting, um and they have one this week.

So that's why we're talking about.

This gives us an opportunity.

We talk, we touched on the fed a little bit before.

But as you noted, we're a long way from the six at the start of the year.

Do you think the rate cut discussion matters at all at this point?

Less than it did?

Um, it matters.

Uh, but the, the economy has surely proven that it can handle it.

Um, you know, was, are you getting the 1.5 from, is that the CME futures?

It's the wirp screen.

But yeah, it's based, it's based on either fed swaps or CME futures.

I think they're both saying about the same thing.

Yeah, I mean, I just put in my subscriber uh monthly webinar that the updated, you know, CME futures for the next two meetings.

We've been, you know, not on the, we're gonna get a lot of cuts this year and, and, and, you know, I, I think the markets realize it's not gonna get more than two.

I said it on another, you know, interview that like, you know, so we're getting definitely getting two this year.

I said, hm, maybe, maybe two, definitely like one, probably one but, you know, maybe two.

So, uh that um 1.5 agrees with me.

I agree with it.

Uh I don't think it matters as much.

I think we gotta look at GDP.

Um We wanna make sure that, you know, whatever little slow down there.

It doesn't get too slow.

It's understandable after the, the banner, you know, uh growth we had come out of COVID and even in the fourth quarter last year, that there's gonna be a little softness there.

So.

Well, Jeff, you had a really interesting call on recessions.

You specifically said we already had one in the first half of 2022.

Uh, and that was when we had back to back quarters of negative GDP growth.

But I'm learning that is not maybe the official definition.

It used to be.

It used to be honest.

Still other countries still use it other big industrial nations.

I think that they changed it to make.

I've heard from a couple of people in the last week, just kind of saying all the soft landing, it's already in the rearview mirror.

This would seem to be in the same camp.

So what's important to me about this call is what does it mean going forward?

I mean, going forward, it means that um you know, this whole inverted yield curve and it's done, it happened.

It's, it's not an issue.

What we're looking at is where the, where the next break is is gonna come.

And, you know, I'm gonna rely on some of my cycles, maybe some of the uh you know, more perennial cycles like the four year cycle, which we're getting into a post election year next year.

I I don't foresee AAA recession on the horizon but doesn't mean it's, it's not possible.

I think post election year, midterm years is where you'll see those things.

I mean, we had our, our recession in 22 and our textbook midterm year bear market bottom in October, which, you know, has been the, the bear killer for, for, since my father named it that in 69.

But, um, the, the economy is looking very well.

There's a lot of money coming from the government techno, I don't see a recession on the horizon.

Uh, you know, it's not to say we won't get one in a couple of years or so.

Is there a seasonality to recessions?

You don't get one every year?

So I know, I don't know.

I mean, by the definition, first of all, I love investopedia and by the definition there, there's yearly.

No, um it does, it happen to occur regularly in a predictable fashion.

Like I, I haven't seen it.

I mean, people try and, and that whole, this whole yield curve predicting the recession thing kind of throws the, that whole capacity to predict a recession out the window and usually it's caused by some sort of, you know, event or something that changes, whether it's COVID or a war or something going on in, in, in, in the market systemically or the economy systemically.

So I don't see a cyclical or a cycle or one day we'll, we'll go over a chri circle cycles and your head will just explode.

I don't want to know there are cycles that are based, there is predict, there's stock market predictions based on the lunar cycles, the zodiac everything.

So there, there's, do you want to know what that is?

There's something for everybody.

I don't think you get into the zodiac in your work.

No, when I'm, you know, out at some festival, I might, you know, think about what you ask you what your sign is.

But other than that based on horoscope, I, I have one quick question.

So we, we've been talking a bit about being in an election year.

What should we expect as we get a little closer in terms of equities for people to start seeing and what's the seasonality there?

There's a chart I put out recently.

Um, that shows that the NASDAQ highlights this sort of uh little sideways action.

June, July ahead of the conventions.

So we can, it's just a bit of chop at sideways action once we get through the conventions and it's really decided who's run, like who's in the general election, then the market tends to begin to rally, um, especially after the election if we can get, you know, that's where the juice is the last time if we can get an actual decision on election day or the next day, unlike 2000 and you know, the other recent history, um, the market will be very pleased that we have decided just the fact that there is a decision correct.

So, yeah, the last seven months, as I alluded to uh, before of elections, only two losses.

So, um, it, it's, it's kind of 45 degree angle with the chart going up.

I mean, it, it's after this little soft period, seasonal, soft period, I think we're, um, all right, pretty bullish.

All right.

So I gotta say it's time to roll, to roll out the red carpet here and it's time for who wore it better today.

We are pitting seasonality maps against each other.

Perfect for you, Jeff, you're going to see this done nowhere else in media because it is just too powerful.

So we've been talking about the various ways to slice and dice.

The current trading year.

It is the fourth year of the presidential cycle, an election year.

It's also an election year with a Democrat incumbent and it's also a year marked by a strong first quarter, a down April and an up May and Jeff, you're the only person we could ask this to besides maybe Ryan Dietrich is what is the seasonality map that is worn by 2024 the best.

Um I think the sitting president running for re-election.

Um Whatever party is, is what, what's happening here.

Uh The the what we just had with the down April and Up May that you're talking about shows a little more chop and weakness.

So the combination of, of those two is, is the map that, that I'm looking at that seems to be tracking closest right now for for 2024 and we got some more time here.

I'd be really interested to hear about when you were a kid how you were.

Um The, the stock traders almanac is as old as you are.

So from day one, you were just kind of immersed in it.

You're talking about doing calculations by hand, which I love.

Um Just what, what was that like?

I mean, born bred weaned, raised on cycles, seasonality and patterns.

Uh I mean, I used to go in and say good night to pop.

Uh, well, looking over charts, you know, when he was working from the home office back then it was, you know, the business was in the house.

It wasn't just all cycles and patterns and seasonality and stuff.

It was, you know, Hirsch Organization.

Can I help you take an order at the kitchen table?

You know, there was a phone, a five button phone everywhere.

Um, you know, I used to go down there like Monday night football was the night I would go downstairs with a little TV and ship all the books out to the brokers.

I mean, we sent books to Hong Kong and Switzerland and London and, you know, Peoria and everywhere to every, every broker that, you know, they would buy on Monday night football results.

Um, it was just, it was just my time to, to, to get it at, you know, it was like something, it was a, you know, I had something to do while I was packing the, put the invoices in there, but there was always a discussion.

I mean, it was Wall Street Week for dinner on Friday nights.

Um, yeah, I mean, dad was on there a couple times back in the late seventies or the eighties.

So shout out to, um, uh, Wall Street Week because that is a show.

I didn't get into finance until about 2005.

That was year.

Unfortunately, that was the year of uh R Iser death.

Uh But it was an amazing show that was put on by PBS.

And you have these various Wall Street hedge fund guys just kind of casually talk about the market in a PBS type setting.

Um Tell, tell us about your father's appearance.

Uh It had come about when, you know, I made this, this prediction for Dow 38,820 the super boom, which I, I put out in May 2010 and it was built off of Yale's another long cycle that he um discovered of how the market rallies with um after inflation and war.

And he had a prediction in 76 from Dow 3420 by 1990.

And that was, you know, that and some of the other cycles of the, that'll get some headlines.

I remember he had a car, I saw some of the old T shirts that say Dow 3420.

And I think ru Kiser, if I remember spoke at that conference, he was like the keynote that my father ran up and it was, what was the Tarry Town Hilton now?

It's a double tree or something.

But um yeah, that was why he was on there.

Uh I've got a picture uh in my office of him.

I think mom was like, I got the name wrong.

R Kaiser is the correct pronunciation.

I said Rucker.

But again, I didn't, I didn't, I was not aware of the show until after it had ended.

But sid you got something here before we go.

I wanna know uh my question is twofold.

The first stock market concept you ever learned whatever that means to you.

And then the concept that took you the longest to understand or nail.

Oh boy.

Uh The first one that I really understood was probably the intraday uh you know, the, the cash flow, the, the calculations I did for my father, the, the, the monthly, you know, five day bulge.

That was what really clicked.

I understood what happened there and what um eludes me right now.

Oh God.

Uh probably derivatives.

I'm not an options trader, you know.

Um I don't, I don't see that stuff.

Calculus and algebra is not my thing.

I'm a little more verbal than that I think.

But um it's probably the, the, you know, trading of options.

We got a minute.

Um Anything else you want to share with the viewers.

Um, I, I mean, I can tell you that, uh, we are tracking very closely to the seasonal and four year cycle patterns.

It calls for and this calls for it, what, what can we expect can expect, um, more new highs at the end of the year.

A little sideways action here.

But, uh, I'm starting to, I'm, I'm writing my outlook for next year already.

We're working on 25.

It should be done with that this week.

I'm getting concerned about 2025 being a post election year.

Um, after we've been through so much and just the, the cycle of work that I do and, and the fact that we've, you know, we're, we're due for a break from how far the market's gone over the last several years.

Yeah, it seems like we've been nothing but double digit returns for quite some time except for 2022.

I was going to say, how does tech come into what you're projecting for 2025?

Like is the A I boom?

What does that kind of do for your pre prediction?

I think that I think it's gotten a bit ahead of itself.

Um, you know, as some of these, these and I don't think it's a bubble.

I think it's, it's, it's real like I, I'm just wondering.

Not yet.

No, I don't think it's, I think it's not, maybe not ever.

It, it may be a little ahead of itself but there's some real depth uh to this industry, this technology, it's, it's finding itself into everything.

We're winding things down here at stocks in translation.

But here's a poem of our own.

Before you go, may your powder be dry and your account balance be high.

That's all for now.

Stick with Yahoo finance.