With the turn of the new year, we naturally shift our focus to the next 12 months to see what 2024 will bring us. Here are a few themes I’ll be watching as we enter a new year, in no particular order:
- The Magnificent 7:
- Not the Chris Pratt and Denzel Washington movie, but the 7 stocks that drove the majority of the return in the stock market in 2023: Apple, Google, Microsoft, Amazon, Meta (Facebook), Tesla, and Nvidia. If you expand these 7 stocks to the top-10 and include Berkshire Hathaway, Exxon Mobile, and United Healthcare Group, these 10 stocks were up 64% in 2023 compared to the other 490 stocks of the S&P up only 8%.** It was the year of the Magnificent 7, and perhaps the quote from Chris Pratt’s character, Josh Faraday, fits well here when he says, “So far, so good!”
- Artificial Intelligence/Tech:
- The theme of AI within Technology companies will continue to dominate the headlines. News out of CES, a large technology conference held every year, indicates impressive strides in artificial intelligence and the every-day use cases that could be coming soon.
- A year of the broadening?:
- Much will be talked about this year related valuations of the stock market. The tech sector, on the backs of The Magnificent 7, is trading significantly above it’s 20-year average P/E multiple, while other parts of the market are not. Will this year be the year of the much discussed “broadening” where tech takes a backseat, or does the AI thesis continue to dominate investor sentiment?
- Cash, money markets, and T-bills:
- 2023 was the first year in over a decade that yield was found in cash-instruments such as short-term T-bills and money market funds. Look for 2024 to continue this trend as the 3-month T-bill is still yielding 5.38% on an annualized basis.^
- Inflation (or the lack thereof):
- If 2022 and 2023 were dominated by high inflation, 2024 looks to buck the trend with inflation trending back to what would be historically normal levels. This doesn’t mean prices will fall (don’t we wish :-)), but that the inflation growth rate will normalize back to a more palpable number. The fall has been steady from 9.1% on headline inflation (June 2022) to the most recent print of 3.1% (November 2023), which has given us the belief that inflation may be leveling back to normal.*
- Bitcoin hits the mainstream:
- The Securities and Exchange Commission (SEC) recently approved a spot Bitcoin ETF, allowing investors to access this asset class via an ETF security. With the adoption of Bitcoin as currency in developing countries such as El Salvador, and indications that other Latin American countries may deem it legal tender in the near future, this approval by the SEC continues the accessibility to both retail and institutional investors on a much larger scale. In a stroke of poetic karma, these Bitcoin ETFs started trading exactly 15 years to the day after Hal Finney, believed to the be the first person to download and receive Bitcoin, tweeted, “Running bitcoin”, on January 11, 2009.
- Election Year:
- 2024 is a major election year, not just in the U.S., but in much of the world. Dating back to just before World Ward II, the S&P 500 has only seen two down years in presidential election years, despite large intra-year volatility.
- Hard, soft, or no landing?:
- The most anticipated recession that has yet to come continues to be the topic of most economists. Will we have a soft landing (mild recession), a hard landing (deep recession) or no landing (we just keep flying with a good economy)? Most economist believe we can close the discussion on which “landing” we’ll get by the end of the year as we’ll have a more clear picture of where things are going.
- New Coaches:
- With the retirements of Bill Belichick, Nick Saban, and Pete Carroll, the football world will look to replace three iconic coaches, who between them won 7 Super Bowls and 9 College National Championships. Perhaps my favorite Nick Saban quote is the following: “Mediocre people don’t like high achievers, and high achievers don’t like mediocre people.”
There’s a lot going on and a lot of news to digest and understand how it plays into markets, investing, and the economy. Our job is to help you make good decisions with your money and build your financial fortress. We watch markets everyday so you don’t have to. As always, if you have any questions, please give us a call.
*J.P. Morgan Guide to the Markets: Page 28, ^CNBC Website: 1/11/2024, **J.P. Morgan Guide to the Markets: Page 10s
