As 2024 is now in the books, let’s take a look at how My Gut Feeling For 2024 performed versus the actual results. In black are my original expectations and in red is how I performed:
- Wall Street analyst’s expectations appear to be quite disparate in their expectations for 2024. Of course, perma-bears and perma-bulls will sit on the tail ends of the bell curve, but everyone else fits in between those tail ends. There are neither fat tails (leptokurtosis) nor a tall hump (camel distribution). That’s a good thing for professional investors because more than ever, stock picking and strategy mix selection will be more important than indexing.
There will be four main variables/events which will steer the course of financial markets this year. First is monetary policy of the Federal Reserve Open Market Committee (FOMC) which I will cover below. Second, volatility is likely to pick up a greater pace, more akin to that of 2021. Because of that, I expect more market swings both up and down. Next are the 2024 national elections – both for the White House and Congress. Finally, the Israel-Hamas War and other existing wars. The 2023 Standard & Poor’s 500 (SPX) consensus earnings estimates range from 215 to 225, as we still have one more quarter yet to report, we cannot be certain as to where the final figure will land.
Using the midpoint of 220 with the SPX closing last year at 4,769.83 implies an index price/earnings multiple (PE) of 21.68. If we throw out the low PE of 2018 and the high PE of 2020, 2023 came in at about where most other years were over the last decade. With the yield of the 10-year US Treasury at around 4%, that PE Ratio is reasonable, using the bond equivalent PE ratio of 25. Had rates not peaked in 2023, then I would say that the SPX was overvalued coming into 2024.
Looking ahead to 2024, Wall Street consensus estimates for the SPX earnings is about 245. Applying a consistent PE ratio of 21 arrives at a target price of 5,145 for the SPX, an annual increase of 7.43%, which is just below the long-term average increase for the index. Now I must throw into the equation some historical data for recent presidential election years. The SPX lost 38.49% in 2008 (the Financial Crisis year); gained 13.41% in 2012; rose 9.54% in 2016; and, surged 16.26% in 2020. So, all considered, I am going to jiggle my target for the SPX up a little to 5,267, an annual gain of 10.42%. – I was too conservative as the S&P 500 (SPX) rallied about 23.31% to 5,881.63. The SPX earnings were a bit higher at $251 (estimated) but the market applied a heftier multiple of 24 when all was said and done - The Federal Reserve Open Market Committee (FOMC) had embarked on a two-year long tightening cycle to try to bring down three-year long rapid economic inflation. So far, the FOMC appears to have achieved its goal and hinted that it was getting ready to end interest rate hikes and perhaps begin to bring rates down. According to the dot plot, an estimate of FOMC member projections, estimates point to two-fifty basis point rate cuts in 2024. FOMC two-day meetings take place in January, March, April/May (crossover), June, July, September, November (just after the election) and December. First, keep in mind that the FOMC does not like to influence elections, so take any action in September off the table. I am expecting 75 basis points in rate cuts in 2024: 25 basis points in June or July and then 50 basis points after the election. – The FOMC cut it’s target rate by 50 bps in September and another 25 bps each in November and December. All told the rate declined 1.00% in 2024 to 4.5% at the end of the year. I underestimate the FOMC in the aggregate and the timing of such cuts. They might not be as generous in 2025.
- As for US Treasury securities and bonds in general, the question becomes does the yield curve remain inverted or does it normalize to an upward sloping curve? Right now, 2s-10s are about 3/8% inverted. In plain English, that is, yields on the 2-year Treasury are 3/8% greater than that of the 10-year Treasury. Between 3-month and 30-year, the ends of the yield curve, there is an inversion of about 1 1/8%. FOMC action will lower the short end by 75 basis points. I am not quite confident that we will have an upward sloping curve by the end of the year, rather I expect a flattened yield curve. – US Treasury rate yield curve normalized somewhat but looked much like a roller coaster with rates at the end of the year showing a decline from 1-month (4.43%) to 1-year (4.27%) then rising to 20-years (4.84%) and tapering off lower to 30-years 4.77%). Nothing is perfect but the yield curve looked a lot better at 12/31/24 than 12/31/23.
- The recession question was answered in 2023 for which I have written about several times. The question for 2024 is hard landing or soft landing? You can have both without creating a recession. In a soft landing, economic conditions weaken but only gradually. In a hard landing, economic contraction is much more pronounced and dramatic. My money is on a soft-landing. – Take the don’ts and pay the line (a saying borrowed from craps). I had the soft-landing correct.
- Growth stocks had a banner year, one not seen since the tech/dotcom boom of the 1990s, with one major difference. In 2023 the tech leaders had solid earnings and generated large caches of cash. The “FANG” stock acronym was replaced by the Magnificent 7: Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). These are all big weights in the NASDAQ 100 (NDX). Not only did these stocks surge but they have had fantastic returns over the past decade. So long as the earnings growth continues for these stocks, and I expect that it will for most of them, then even selling at high PE ratios, the stock prices will continue to outpace the SPX. Let’s not forget the long-term trends in AI and obesity/diabetes treatment. AI is embedded in the Magnificent 7 stocks while you can look to Eli Lilly for obesity/diabetes care. I have two caveats. First, expect some early year profit taking as investors push capital gains into 2024. Second, I am less enthusiastic about AAPL than I was in the past. We have owned AAPL since 2005 but have reduced our exposure to the stock in 2023. – AI giant Nvidia (NVDA) rose 171% in 2024 (also splitting 10 for 1), AAPL maintained a slight lead over NVDA in terms of market capitalization but rose 26.5%, slightly better than the SPX. Some first quarter profit taking did materialize but both stocks closed near 2024 highs at the end of the year. We had a few other stocks in 2024 that managed to gain over 100% for the year (but you have to be a client to know which those are). Eli Lilly, on the back of growing use of GLP-1 medication for diabetes and weight control rose 32.4% in 2024 but declined from its mid-year peak by nearly 15%.
- Dividend / Value stocks experienced weakness in the first half of last year but awoken in the 4th quarter when the FOMC signaled that interest rates would likely decline in 2024. I am expecting our benchmark index S&P 500 Low Volatility / High Dividend Index to rise double digits in 2024 after a 3.28% decline in 2023 (we outperformed the index by a wide margin in 2023. Please contact us for Performance Results). – That Benchmark index rose better than expected. We achieved double digit returns in our Dividend Value Strategy. Please note as we rolled out a new client reporting and performance platform in 2024, Black Diamond, the Benchmark Index for the Dividend Value Strategy was changed to the Dow Jones U.S. Select Dividend (DJDVP) in 2024, which also returned double digits returns for 2024.
- Small Capitalization stocks will be leaders in 2024. While the S&P 600 (SML) gained a not too shabby 13.89% in 2023 it did underperform the SPX and the S&P 400 MidCap Index (MID) which rose 14.45%. I think in 2024 we will flip the script with leadership in the SML whilst the MID and SPX will be laggards. I began to move assets in our Growth Portfolios into Small Cap stocks in the 4th quarter of 2023 and am looking for more candidates to purchase. – Small Caps performed well in 2024 but continued to be bridesmaids and not the bride.
- Inflation rates will continue to stabilize but will remain at or near a pesky 3% level for 2024. Remember though that consumers are still absorbing the huge inflationary prices of about 18% in total over the last three years. – I give myself a big checkmark for this expectation.
- In Politics I have a few expectations / surprises (this section is always meant to be speculative and controversial, so if you don’t like it, get a sense of humor):
- Biden will not run for reelection and if he does, he will lose. There will be pressure for him to step down and let a younger more vibrant Democrat (not Hillary Clinton) take the nomination. Should he run, he will be pressured to change Vice Presidential running mates. The Republican ticket will be Donald Trump and a woman to be named later. I am going to speculate that it would be Arkansas Governor Sarah Huckabee Sanders. Georgia will be the swing state to determine the winner of the election. – I got most of this right, especially the part about Biden not running and being forced out of the election, Donald Trump being the Republican candidate but he selected JD Vance as his running mate. Yes, Georgia was a swing state, but so were many other states which led to President Trump. becoming the second Grover Cleveland.
- Jeff Bezos will run for Senate representing the State of Florida and lose. – missed that one but the Republican Rick Scott easily won reelection.
- Fearing that Donald Trump would win the Presidency and with the rest of the world eyeing wars in Ukraine and Israel, President Xi of China will invade Taiwan before the election takes place. If so, that will only bolster Trump’s chance at reelection. – it was a stretch but maybe Trump’s impending victory quelled Xi’s aspirations.
- In Congress, we will see a double flip whereas the Republicans will take control of the Senate while the Democratics regain control of the House of Representatives. – got this half right as the Republicans gained control of both houses of Congress.
- Prince Harry and Meghan Markle will officially separate, and Harry will return to his homeland. – it’s not official just yet, but there are rumors to the effect
- Biden will not run for reelection and if he does, he will lose. There will be pressure for him to step down and let a younger more vibrant Democrat (not Hillary Clinton) take the nomination. Should he run, he will be pressured to change Vice Presidential running mates. The Republican ticket will be Donald Trump and a woman to be named later. I am going to speculate that it would be Arkansas Governor Sarah Huckabee Sanders. Georgia will be the swing state to determine the winner of the election. – I got most of this right, especially the part about Biden not running and being forced out of the election, Donald Trump being the Republican candidate but he selected JD Vance as his running mate. Yes, Georgia was a swing state, but so were many other states which led to President Trump. becoming the second Grover Cleveland.
- In sports, the Vegas Golden Knights, to my disappointment will not repeat as Stanley Cup Champions, losing to the Boston Bruins in the cup finals. The Detroit Lions will win their first ever Super Bowl here in Las Vegas. The Los Angeles Dodgers despite spending the GDP of Costa Rica to sign Shohei Ohtani and Yoshinobu Yamamoto will not win the World Series. Rather, the Baltimore Orioles will win the World Series for the first time since 1983. In the NBA, I could care less. – the Floria Panthers won the Stanley Cup. Due to a big coaching mistake, the Detroit Lions lost in the NFC final and the Dodgers beat my Yankees in the World Series. There is always next year.
Best wishes for a Happy and Healthy 2025. As always, please contact me if I can help you with your investment needs or for media appearances. Also, feel free to post your comments / questions to My Gut Feeling and pass it on to relatives, friends, and colleagues throughout the year. Also don’t forget to read Carly Rothbort’s My Two Cents.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long AAPL, AMZN, LLY, META, MSFT, NVDA, SPY & QQQ, - although positions can change at any time. The mention of stocks are not recommendations and may not be suitable investments for your individual situation.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
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