The December Dip That Was A Week Late

Back on Nov. 14, 2024, I noted in a Chart In Focus article that the current market’s price path was looking a lot like both 1964 and 1980.  It seems appropriate to review the progress since then.  This week’s chart looks again at that 1980 comparison.

1980 was when President Reagan defeated the incumbent President Jimmy Carter to win election.  Reagan’s victory was both anticipated and celebrated by Wall Street, as he was seen as a “transformative” candidate with the promise of solving all of the problems which faced the country then.  And Reagan arguably was a transformative president, but the first two years were not a pleasant time to be a stock investor.

Whether 2025 is going to be a repeat of 1981 is an interesting topic, and one that I will be exploring in my newsletter as we get there.  But for now I want to focus on the sharp dip that the stock market just went through, in response to the Dec. 18 FOMC meeting.  They announced another quarter point rate cut, which everyone expected, but then they also poured water on expectations for more rate cuts next year.

That was a big disappointment, and started a big wave of sell programs on Dec. 18, the day of the FOMC’s announcement.  The stock market tried to get up but made a slightly lower low on Dec. 19, 2024.

This dip matches one that the stock market suffered in December 1980.  The difference is that the prior dip bottomed on Dec. 11, 1980.  So the dip which the Fed’s announcement ushered in this week matches the dance steps of that Dec. 1980 dip, just not precisely to the day.

If the 1980 script continues to get followed by the stock market, then we have a robust rally coming toward a top due just after New Years Day.  Then the trouble starts.

Being a transformative president is a hard thing to do.  It was hard for Reagan to get his policies and programs implemented, and it will likely be harder than many are expecting for Trump to do the same.  Even if Trump does end up succeeding at all of his efforts, it is still possible that investors may have overdone things pricing in their expectations of such success much like they did in 1980.