We did not start 2024 well in terms of US stock markets. The massacre continued yesterday. Moreover, the Santa Claus Rally is dead. Santa Claus Rally means that the last three working days of last year and the first two working days of today are positive. Unfortunately, we could not get a positive result in any index. Normally, a 1.3% increase in the S&P 500 would be expected in these 5 days. The results are not like that. Such a negative outcome of the Santa Claus rally is generally perceived as negative for the rest of the year. But more importantly, the Santa Claus rally is part of the January barometer. The January barometer is very important, it is a very accurate barometer historically, it is a barometer whose results are very accurate, and the fact that the Santa Claus rally is dead is not good for that place either.
Yale Hirsch created the January barometer concept and published it in The Stock Traders Almanac in 1972. It has remained popular ever since. The basic idea is how January goes, so goes the rest of the year. It consists of 3 basic elements. One of them is the Christmas Rally. The Christmas rally needs to end positively, the S&P 500 needs to gain 1.3% or more in 5 days. It didn't happen this year. The first 5 days are negative. The second criterion must be completed in the first 5 days of the new year. We have had very bad results there in the first two days. Of course, we have 3 more days ahead of us and today I see that we will open on a positive note and finally, January needs to end on a positive note as well. When all three criteria are met, the year will almost certainly end positively. When we look at it, measurements made since 1950 show that if all three criteria are met, the year is completed positively at a rate of 90.3% and an average income of 17.5% is achieved in the S&P 500. Last year was a very good year for S&P, we achieved 23%. So 17.5% is not a bad number at all. Even if only one of the three criteria is not met, the probability of having a positive year decreases considerably. It comes down to 59.5% and the average income in those years is only 2.9%. We have already lost one of the three criteria, namely the Santa Claus rally. If all three are negative, then things get a little worse. S&P lost in such periods in three of the eight years measured. 11.4% in 1969. 10.1% in 2000, 38.5% in 2008.
Now I may be making you feel sad, but we only lost one of the three criteria. The other two are criteria that we still have a chance of winning. It would also be useful to give positive news. In the United States, when the same president is re-elected, the S&P goes up by an average of 12.8% that year. This is a measurement made since 1949. Let this refresh your mind a little.
But either way, it's clear that we started January badly. Yesterday was the second day of the January broadcast and it was pretty bad. Dow Jones fell 0.76%, S&P 500 fell 0.8%, Nasdaq fell 1.18%. Small stocks also lost 2.66%, which surprised me. Because there is also a concept called the January effect regarding January. Small stocks generally move up in January. Because there is such a general theory that people are selling losses in small stocks from the previous year and entering here at lower prices. That theory also ended this year. But its overall impact on the stock market is less.
Looking at the S&P 500, I was expecting a loss of 1.45% and a positive of 1.30% in the Christmas rally. It lost 0.85% of the year in the first two days. We have 3 more days ahead of us. Of course, there is a possibility of making up for this.
Looking at the Nasdaq, we lost 3.2% in the Christmas rally. We lost 1.79% in the first two days of the year. Things are a little more difficult here. When we look at Russell, we lost 5.03% in the last 5 days. This isn't Santa Claus Rally vibe at all. Again, there has been a 2.61% loss in the last two days since the beginning of the year.
Things are a little better at Dow Jones. 0.26% loss on christmas rally. In the last two days, the loss has reached 0.36%. Now let's look at the coming days. The thing that is very challenging for us in these two-day decline is that we are experiencing very harsh GAP downs even as the market opens. QQQ nasdaq's largest etf is falling leaving a big gap at the opening. He cannot make up for it again during the day. In fact, after the FMC meeting yesterday, the decline accelerated a little and we closed the day in negative.
So, what data came yesterday that made the markets fall so much? Actually, there is no significant data flow. The ISM production index was expected to be 47.10 and realized as 47.40. So it's actually a positive sign. This isn't too negative. The previous reading was 46.7. This may have instilled fear in the market that the FED will not reduce interest rates or whether the economy is a little too buoyant. In the second data released yesterday, the number of new positions opened in the USA was expected to be 8.85 million. 8.79 million arrived. This shows that employment in America is still strong, but has lost some steam. Normally, this is an issue that markets would welcome. Why do markets expect some slowdown in the employment market? Because this is one of the FED's criteria for reducing interest rates. Yesterday, Wall Street Journal journalist Nick Timiraos, who works as a spokesman for the FED, also focused on this issue and said that there is a slowdown in employment and the 3-month average has reached the lowest average of the last 2.5 years. With 9 million newly opened positions, the number of positions opened for every job seeker has decreased to 1.4. This was previously 1.8.
Of course, it is dangerous if this continues like this. This is a dangerous sign as there are rumors of a recession. FED needs to take precautions against this. If you look at the graph, you can see that newly opened jobs are decreasing quite rapidly compared to people looking for a job. Inactivity in the labor market has also begun to increase. For example, people do not quit their jobs very often. There is now a decrease in rates. Finally, there is a serious decrease in the number of newly hired people. We are now even below the pre-Covid period of 2020. FED needs to see these. The stock market normally evaluates this positively and says that there is a slowdown in employment. Remember, the FED has two duties. On the one hand, it needs to keep inflation under control. On the other hand, it needs to keep employment under control. As a matter of fact, this data arrived. The stock market seemed to move slightly upwards, but then the FED meeting minutes were announced.
These are the minutes of the meeting where Powell excited the markets after his speech. But these minutes are not something that is kept alive at that moment. Then I understand that they are subject to some censorship. Because when we read the minutes published yesterday, it seems that there was no talk about reducing interest rates. However, what did Powell say? He said, "We are having small conversations about reducing interest rates." But the minutes denied this. I think there is some censorship there. However, there is actually nothing negative in the minutes. All officials said there was clear progress toward the Fed's 2% inflation target in 2023. Very positive officials. He thinks that economic growth will slow down and the rebalancing of the labor market will continue in 2024, which is positive. Authorities see risks to inflation. Employment is moving toward greater balance, he says. This is where it scared the markets a bit. Most respondents expect the restrictive policy stance to continue to moderate spending and reduce inflation. As you can see here in the minutes, there is nothing about interest rate reduction. There are even statements by a few FED members that interest rates should be kept high for a longer time. But here is the truth. What did Powell say after this meeting? "We actually talked about the decline," he said. The market is already enthusiastic and excited about this. Additionally, inflation continues to fall sharply. According to the latest trueflation inflation measurements released yesterday, inflation in America is currently down to 2%.
My interpretation is that these statements are quite balanced, the FED does not want the markets to get too excited. That's why I think they have to eliminate this interest rate reduction from there. There is nothing that scares me. Of course, just because there's nothing that scares me doesn't mean there's nothing scaring the market. On January 31, the probability of the FED reducing interest rates was previously seen as 16%, but now it has decreased to 9.3%. But the more tragic thing happened in March. In March, this appeared to be 72%. It is now down to 64.7%. The previous week it was over 80%. Those chances are decreasing. Why hasn't employment collapsed yet? Something is happening in production, etc. I think it's all noise. Because inflation is decreasing, and as inflation decreases, interest rate cuts become inevitable.
If you look at the expectations of different analysts regarding interest rate cuts, for example, Bank of America says that the first cut will come in March and there will be a 100 basis point cut throughout the year. Barclays says the first discount will come in June, it will be a discount of 75 basis points. There are those who are ambitious, for example UBS, who say that the first one will come in March and there will be a discount of 275 bass points. In other words, today's interest rates are estimated to be roughly even below half. Wells Fargo and Jefferies are expecting a 225-basis point discount.
I'm a fan of staying calm here. Because if the economy is doing well, the FED will not make such 275 bass points. I hope the economy goes well and the discounts are around 100 bass points. Because a discount of 275 basis points is not perceived by the markets as just inflation falling and the FED reducing interest rates. It is perceived that something is going wrong. I would prefer the economy to go smoothly and to have 5-6 discounts between 125 - 150 with 100 bass points. But the important thing is that it would be better if there was a discount in March. Because the markets have priced it very high. If it turns out that there will be no discount in March, this is not good for the market. I was predicting that there would be these noises this year. I expected these noises to start in February. Now the noise seems to be pulled forward a bit.
Of course, bitcoin also had an impact on the noise that broke out yesterday. Bitcoin dropped from 45 thousand to 41,000 within minutes and then closed above 42000. Because a nonsense news was published about whether Bitcoin etf will be released or not. By the way, this is the first time I hear about the organization that published the news. But sometimes the techniques tell us that these declines are necessary. S&P 500 and Nasdaq also rose tremendously last year. Bitcoin has continued to rise since the beginning of this year. When there are such rapid rises, the markets look for news and declines may occur from there. This is what happened with Bitcoin. The decline of Bitcoin affects some stocks on the American stock market. Because there are Crypto miners, there are market places like Coinbase. They were also affected very negatively yesterday. This was one of the factors in danasdaq's decline. But as they say, when bad news comes, it pours down. This was another factor that turned the general atmosphere in the stock markets into a negative one. I think it will be temporary. But it happened.
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