Plenty of Market Gifts This Year! What’s In Store for 24?

The S&P 500 dropped 20% in 2022. Bonds had one of the worst years on record, with the average fixed income fund dropping double digits. Most investors did not feel much hope for the year ahead last January. Contrary to this belief, the year started quite strongly. Technology and the advent of artificial intelligence kicked the year and the markets into high gear.

After so many years of hearing about the technology revolution’s next phase, November 2022 changed so much. ChatGPT was introduced, and investors began to speculate how AI could be incorporated into businesses and create efficiencies and productivity previously only imagined. That provided more ammunition and leverage for investors to be invested in the tech space throughout 2023.

(We also began to fiddle with AI in 2023, noticing that by utilizing it, we could improve upon some of our algorithms as well as in manufacturing and optimizing our All-Weather Portfolio Blends. While we have just begun to integrate these tools into our investment constructs, we have noticed the incredible benefits already)

Given this new optimism about technology, the NASDAQ rose quickly beginning in early January and was up almost 20% in the six weeks of the year. The S&P 500 also followed and, given the market cap strength of the Magnificent Seven, was up almost 10% during that same period.

The gifts kept on giving until March and a few regional banks were caught in trouble as a direct result of higher interest rates. Concerns about another banking crisis hit the market and wiped out a large portion of the early year’s gains.

Thankfully, the potential for a widespread banking crisis was contained to just a few regional banks, and stocks picked back up again and rallied into the summer months and hit new 52-week highs across most indices in July.

But the Fed’s aggressive interest rate hiking campaign continued into the fall, accompanied by geopolitical turmoil in the Middle East, and the S&P 500 saw another 10% drawdown before bottoming on cooling inflation numbers in October. This marked the top in interest rates at 5%, and they have since rallied into year-end.

This past week, CPI came in below expectations and is now showing a monthly print below the Federal Reserve’s targeted 2%. We suspect the Fed knew this in advance which is why they recently broadcasted three rate cuts in 2024 at their December meeting. See the inflation chart below:

Active money managers were way underinvested at the end of October and are now firmly in the bullish camp.  See chart below:

(As of this writing, our Small-Midcap Earnings Growth investment strategy is up over 50% year-to-date.  If you would like to receive a fact sheet about the model or would like more information on following the strategy or having it traded for you, please reach out to [email protected], and he will forward you the information)