January 2024 Market Update

Happy New Year & Welcome to 2024!
Before we look to what this year may bring, let’s recap the rollercoaster that was 2023. For starters, who had the Dow (DJIA) hitting an all time high for 2023? It’s ok if you didn’t, you certainly weren’t alone. Coming into 2023, nearly 100% of economists surveyed were calling for recession and, at best, investors were bracing for a storm. (The CEO of the biggest bank in the country, JP Morgan, specifically called it an economic “hurricane”). And at worst, some investors were on the sidelines in cash. What many didn’t expect, however, was the resilient US consumer, inflation getting cut by more than half while virtually no jobs were lost in the process, and the US economy growing at a much stronger rate than anyone anticipated.

The year wasn’t without it’s struggles of course. March 2023 gave us the biggest banking “crisis” since the Great Recession of 2008 and we lost the 2nd & 3rd largest banks in history, First Republic & Silicon Valley Bank. The market was on an AI tear until late summer when the US credit rating was downgraded once again, this time due to a dysfunctional DC. We had a sharp -10% correction in the markets while the middle east once again dominated the news. The US deficit climbed to new highs and 30-year mortgage rates tipped 8% in October.

In the end, though, it was a dramatic year-end rally that will log 2023 as a great year for the markets…Even if it didn’t exactly feel like one. In fact, I’d go so far to say it was probably the most discombobulated bull market in quite some time. (Side note: “Discombobulated” is worth 25 points in Scrabble. Try it sometime!) While the indexes climbed, many investors were left scratching their heads as most stocks simply didn’t keep up. A headline and chart on Dec. 17, 2023 from the Wall Street Journal summed up 2023 perfectly:

 

 

The Mag 7 had returned +75% by mid-December while the S&P 500 index had returned just over +24%.

What about the other 493 stocks that make up the S&P 500?  Only +11.5%.

 

Here’s how local stocks of interest performed in 2023:

Lowes                                      +11.7%

Duke                                        -5.78%

Bank of America                      +0.48%

Hanesbrands                           -30%

British Tobacco (RJR)              -26.7%

Truist                                       -14.2%

 

 

Let’s look to what may lay ahead of us for 2024.   It was only a couple weeks ago the Fed stated they now expect to cut rates in 2024.  In anticipation of that, we’re already seeing rates start to respond; Money markets yields are looking to edge lower while CD rates have already pulled back from even a month ago.

 

Brokered CD Rates

 

As for the markets and the economy in general, we just remind you not to put too much emphasis on any of the “predictions” you see on the news or social media this time of year.  Even if they’re from smart people that mean well, literally no one knows what 2024 has in store for us and, just like we said in last year’s market commentary: it’s the surprise events we don’t have on our radar that usually move the markets more than what we think we’ve already figured out.  (Life is funny that way, isn’t it?)  That said, here are some thoughts about where we are right now that may offer a bit of perspective before the noise of 2024 sets in:

  • Positive: It's been almost 500 days now since the S&P 500 had an all time high.  Last year’s rally basically round tripped us just shy of the all-time high of January 2022.  It’s ultimately been a lost 2 years.  (That’s the 5th longest streak since 1950 with no new market high).   That’s not normal as the markets historically go up more than they go down in the long run.
  • Negative: Leading Economic Indicators (LEI) are typically good forecasters of the economy.  They’ve declined for 19 consecutive months now.  That’s only happened at this level 3 other times in history; the last 2 times that happened, the US had already been in a recession for at least 11 months.  It’s only been 6 months since our last rate hike and there’s generally a 9-month lag time before it’s affects are felt.  Slowly slowing may be a good way to describe the economy right now.  (Raymond James economists have pushed back their forecasts for a recession back to the 2nd qtr of 2024 but have added that they expect it to be so mild, many may not even notice).
  • Positive: For nearly 75 years, every time the S&P has returned 15%+ in a calendar year, as we just did last year, the very next year averaged a more subdued, but still respectable 9% return.   The long-term average for the S&P is 8% so that’s still a win in our book.
  • Negative: We had massive rally in Nov / Dec last year.  The markets are overbought, and some near-term pullback should be expected.  Any serious investor knows the markets don’t move in straight lines for long.  They will always zig and zag but, fortunately, the zig is usually better than the zag.  (I plan on trademarking that).
  • Positive: The S&P 500 feels expensive at this point but if you remove the Magnificent 7 stocks, the rest of the broader markets appear to be at historical fair values.  In the case of small, mid-caps or international stocks, they even appear well under-valued.  Dividend paying stocks were barely up at all last year.  There may be some opportunity for investors that like dividends or value to do well in the future as market rotation broadens out.
  • Negative: We’re in a presidential election year.   We’re still coming off a beautiful holiday high so let’s not ruin the mood with politics just yet if we don’t have to.  We will elaborate more on the election’s effects on the market in upcoming commentaries.  For now, we’ll just say that January through March (the beginning of primary season) is typically the low points for the year in election-year market performance.  Ultimately, the markets generally don’t care which party wins and it ends up washing itself out by year end or shortly thereafter.  History has reminded us time and time again:  Do not make short term investment decisions based on elections.

The experiences over the past 3 years have been tumultuous to say the least.  (Tumultuous is only worth a lousy 12 points in Scrabble.)  But we think it’s been yet another reminder of 3 of the simplest rules in investing:  Diversify, diversify, diversify.  If you moved to cash in March 2020 due to the pandemic or if you had too much tech in the 2022 bear market or if you simply chased last year’s winner in the markets (whatever they may be) …you probably underperformed your long-term goals.

A negative skeptic once said, “You’re only diversifying because you don’t know what’s going to happen.”

EXACTLY…that’s the entire point of diversification!

In closing, I had a Useless Fact of the Month lined up but I thought I’d share this instead:

Tonight, as I was writing this commentary, my phone rang.  It was a voice I’d not heard in a long time, my childhood best friend that I met when I first moved to Sanford, NC in 4th grade.  We remained best friends until we lost touch sometime after high school, the way life does.  I had a million things I needed to do tonight when he called but the next thing I know, nearly 2 hours had passed.  Now we’re both nearly 50 years old and took turns sharing news of our lives, our children, and the adventures we’ve had along the way that we’d missed out on.   At the end of conversation, he said last year was a year of highs and lows but mostly lows for him and he wanted to start this year off with catching up with a long, lost friend.  If the rest of my 2024 is as good as that phone call, then I’m excited about what the year may bring.

We wish you all a prosperous 2024!  Have fun, be safe, make new memories with your family… and maybe call that old friend you’d lost touch with.  It could just be the highlight of your year.

As always, thank you for being a client,

Sean & John

 

 

 

 

Any opinions are those of Sean Bokhoven and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results.
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