Buy-and-Hold Strategy has Outshone Chart-Based Trading: Will it Continue to Dominate in 2024?

Based on Bloomberg data, the buy-and-hold strategy has been able to capture almost all of this year's 19.4% annual returns, significantly outperforming chart-based trading models. Specifically, seven of the 22 chart-based trading models posted losses, particularly those investors who paid close attention to sell signals, despite their caution being justified on both fundamental and technical grounds.

Adopting a buy-and-hold strategy enables investors to avoid missing out on significant market gains, which results in enjoying mid- to long-term market growth. In 2023, the S&P 500's robust development was mainly concentrated in the first half of the year, with most of the trading days with increases exceeding 1.5% occurring during this period. This was precisely when analysts were most worried about a recession and interest rate hikes, which may explain why timing investments became extremely difficult this year.

At the beginning of 2023, Wall Street analysts abandoned their two-decade-long bullish stance and turned bearish on the stock market. However, this pessimistic expectation was immediately proven wrong by the market, as the S&P 500 Index witnessed a strong rebound of 20% this year.

In March, less than half a month after the banking crisis sparked panic and dragged down the stock market, the AI craze and the impressive performance of technology giants reignited investors' enthusiasm. Additionally, despite experiencing three consecutive months of correction since August, the market rebounded to reach a new yearly high in just over a month, driven by investors' expectations of interest rates peaking and hopes of a soft economic landing.

Looking back, the market rally of this year can be attributed to multiple factors. Firstly, the US economy's continued resilience has gradually boosted investor confidence in a soft landing. Secondly, steady growth in corporate profits has played a significant role in driving the market upwards. Thirdly, robust sectors such as large technology stocks and diet pills have fueled growth. Fourthly, the continued impact of the fight against inflation and optimistic expectations of the end of the aggressive interest rate hike cycle contributed to the market's strong performance this year.

Despite the growing optimism on Wall Street, some cautious analysts such as Goldman Sachs' Scott Rubner are still warning of potential risks and advising clients to add protection against possible losses. Presently, stock bulls still face several challenges:

1. There are overly optimistic expectations for interest rate cuts, and some analysts believe that this is just wishful thinking by the market, while the Fed's statement is still based on data.

2. US companies are about to enter a period of profit-related buyback blockade, which has been a crucial driver for stocks, and its absence could negatively impact the market.

3. Chart indicators such as the S&P 500 14-day Relative Strength Index and Bollinger Bands sounded the alarm in November.

4. The risk of an economic recession has not yet been entirely dispelled, adding another layer of concern for investors.