2024 Predictions, 2023 Results, Big Winners, January Effect, Aggressive Targets
Happy New Year!
A new day beckons. A new week, month, quarter, and year along with it.
2024 predictions? I like some stocks. I don't like others. How loose will the Fed have to get? Will inflation continue to slow.. and slow so much that disinflation evolves into deflation? Goldilocks in 2024? Or has she already left the building, leaving only the porridge that is either a bit too hot or just too darned cold on the table.
Time will tell. How OPEC responds to further erosion in crude prices is probably somewhat predictable. Until that is one mixes in some geopolitical risk.
Speaking of geopolitical risk, there is the Russo-Ukrainian War, and there's Israel's war against Hamas in the Gaza Strip, which some would like, for their own benefit, to see expanded beyond its current scope. There's ongoing friction between the governments of China and Taiwan. Then there's Iran and North Korea. One wants to cause trouble while preferring to remain behind the scenes while the other wants to tell everyone how bad to the bone they really are.
So, Happy New Year to you and yours. I wish you less pain, less anguish, and most of all, either extended or improved good health.
As for a prediction, how about the New York Rangers hoist the Stanley Cup this spring. In the meantime, 41 days until pitchers and catchers report, give or take depending on the individual team. Forty-one. Has a nice ring to it.
Last Week
The past week past was a holiday-shortened four-day work week as this week will be. Last week also made for days two through five of the seven-day "Santa Claus" rally period. Santa makes his final appearance for this holiday season this Wednesday (tomorrow). Then, it will be on to the "January Effect," which can be good for stocks and can also make stocks look tired. I have seen that door swing in both directions as there is really no consistency in January or even February trade.
There was not a lot of macro released last week. The Chicago PMI badly disappointed economists on Friday. Readers can take that one with a grain of salt. Chicago is wildly volatile and notoriously difficult to predict.
The Dallas and Richmond Feds released their monthly manufacturing surveys. To the surprise of nobody, the nation remains mired in a lengthy manufacturing sector-focused recession. There were no Fed speakers, and no corporate earnings released. There was Santa, but even he did tread rather lightly.
While the U.S. 10-Year Note gave up 3.86% by day's end on Friday (up 2 bps), one had to almost chuckle when considering that the 10-Year paid 3.88% as 2022 came to a close. All that movement for two basis points. Jeekies. The yield for the 2-Year Note went out at 4.25% on Friday, down from 4.4% a year ago. Just a heads up, Treasury yields are higher across the board as the zero dark hours pass on Tuesday morning.
Equities inched higher last week with the help of the jolly one, but not much higher. The year was altogether a different story. 2023 was good for equities overall, if one was able to keep up with the averages. I think most portfolio managers failed on that count. That's one reason, other than the Fed's intimated pivot, that so many managers ended up chasing performance after the leaves had fallen in 2023.
Stocks
The S&P 500 gained 0.32% last week to close out the year up 24.23%. The Nasdaq Composite ended last week up 0.12% to finish 2023 up 43.42% The more tech-focused Nasdaq 100 gained a beastly 53.81% for 2023. As for smaller-cap indexes, the S&P SmallCap 600, S&P MidCap 400 and Russell 2000 gained 13.89%, 14.45% and 15.09%, respectively, despite all three posting negative final weeks of the year.
Moving on to the more specialized indexes, the Philadelphia Semiconductor Index was the absolute champion of 2023, gaining 64.9% for the year after posting an upward move of 1.03% last week. Large-cap winners in the semiconductor space were Nvidia (NVDA) , Advanced Micro Devices (AMD) , Broadcom (AVGO) and Intel (INTC) . Those four were up 239%, 128%, 104% and 95%, in that order. Yes, your pal was long NVDA and AMD from day one to day 365 in 2023 and remains so.
The KBW Bank Index gained 0.74% last week to finish the year down 4.79%, making it a laggard along with the Dow Utilities, but the fact that banks could come back from as far down as they were three months into the year (and really as late as October) is truly remarkable. The Dow Transports closed out the year up 18.72% despite surrendering 1.03% last week.
For the year, eight of the 11 S&P sector SPDR ETFs shaded green, with Technology (XLK) out in front at +56.02%, followed by Communication Services (XLC) , which is almost really tech by another name, up 52.82%. The Utilities (XLU) closed out the year in last place, -7.18%. Energy (XLE) , for all of its gyrations, finished 2023 down 0.623%.
Word of Warning
A bevy of analysts representing major broker-dealers and investment banks have posted aggressive year-end targets for the S&P 500 for 2024. Many are in the 5,000's and reach as high as 5,400. Though not quite the year that 2023 was, that would stil1 be good for a pop of 13.2%.
Does big tech resume the mantle of leadership after having taken a late-year breather? Does the late 2023 rally continue to broaden? Does this rally ultimately reverse?
That would be difficult to see for some as the Fed, through their infamous dot plot, has indicated this era of rising short-term interest rates has come to its conclusion and that a new era of easier monetary policy beckons. That would be fine and dandy if we knew for sure that inflation had been conquered. Fed Chair Jerome Powell has told us that he believes that if the FOMC were to wait to hit that 2% target to start easing policy that it would then be too late and that would cause overshoot.
Me thinks that maybe they already overshot. Me thinks that perhaps that equity markets are overbought and overvalued for the environment ahead. That said, I trade the markets. Whether I personally am right or wrong on the growth trajectory for either the U.S. economy or corporate earnings is of little value beyond bragging rights. Heck, I would rather be wrong and make a ton of dough than be right and struggle all year.
So, I would guess it makes some sense that in the year of a national election, with employment still at historically strong levels, the Fed would prioritize economic growth over full employment. Yes, the central bank is supposed to be independent, but quite honestly, when has it ever been? Former Fed Governor Lael Brainard, now part of the Biden Administration, was famous for brazenly making political donations to past presidential candidates representing the political party of her choice despite serving in what was supposed to be a publicly apolitical position.
Maybe. Maybe not. Recently, Keith McCullough, CEO of Hedgeye, who is thought of (at least by your author) as quite pragmatic, and prioritizes risk management as a core tenet of his business, said... "Don't lose sight of things. Over the holiday period, don't have some type of crazy epiphany that stocks will never go down again, like they thought at the end of 1999.. at the end of 2007... at the end of 2021... like they're going to think at the end of this year (2023)."
Hard to argue against logic like that.
So... January Effect?
The January Effect is defined by Investopedia as "a perceived seasonal increase in stock prices during the month of January. Analysts generally attribute this rally to an increase in buying, which follows the drop that typically happens in December when investors, engaging in tax-loss harvesting to offset realized capital gains, prompt a selloff."
Thing is, U.S. stocks did not experience a December selloff, and are now coming off of a 4.42% December increase for the S&P 500 that was built upon a November surge of 8.92%. The Nasdaq Composite popped 5.52% in December after running 10.7% in November. Sentiment has obviously swung from extremely bearish this past October to extremely bullish as the closing bell rang at 11 Wall Street on Friday afternoon.
The truth of the matter is that over the past 25 years, the S&P 500 has gone negative 13 times for a mean return of -0.09%, while over the past 15 years, January has gone negative eight times for a mean return of +0.17%, so anything can and will happen. Over the past 25 years, the mean return for February is -0.8%, so if the year starts to get sloppy as traders look to take profits once Santa exits the premises, I would not be very surprised.
Because some of you were going to ask, over the past 15 years, the first week of the year has gone green 10 times for a mean return of +0.87%. Over those same 15 years, weeks two through five were typically the weakest performers as the new year gets its sea legs under it.
The Week Ahead
It is "Jobs Week," and before we get there (on Friday), we'll have to run through the FOMC Minutes on Wednesday afternoon as well as the manufacturing and service sector U.S. PMIs from both S&P Global and the ISM.
We will see our first Fed speaker in quite some time this week as Richmond Fed Pres. Tom Barkin will make public appearances on both Wednesday morning and Friday afternoon. Barkin leans hawkish on policy and does hold policy voting rights in 2024. Don't be surprised if he's not the only one to crawl out of his hole at some point over these four days.
On the corporate side, Conagra Brands (CAG) , Walgreens Boots Alliance (WBA) and Constellation Brands (STZ) will all report later this week. The earnings calendar will remain quiet until late next week (Hey, isn't week 3 when the sellers tend to show up?).
Elsewhere, top executives from Merck (MRK) and Bristol-Myers Squibb (BMY) will attend the Goldman Sachs (GS) Healthcare C-Suite Unscripted Conference on Thursday, while Zscaler (ZS) holds its annual meeting on Friday.
Economics (All Times Eastern)
09:45 - S&P Global Manufacturing PMI (Dec-F):Flashed 48.2.
10:00 - Construction Spending (Nov): Expecting 0.5% m/m,Last 0.6% m/m.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.
At the time time of publication, Guilfoyle was long NVDA and AMD equity.