11/27/2023 Market Strategy
A Preview of our 2024 Market Strategy
This week we offer a quick take of our view of what we expect from the year ahead.
Key Takeaways
- With 482 companies in the S&P 500 having reported Q3 results so far they show earnings growth of 4.3% from a year earlier on revenue gains of 1.9%. Eight of the 11 sectors of the S&P 500 are showing positive earnings growth, with four (communication services, consumer discretionary, financials, and information technology) rising at double-digit rates.
- We provide a preview this week of our Market Strategy outlook and views for 2024.
- A fourth consecutive week of gains for the S&P 500 left the benchmark by Friday’s close just 0.65% off from where it stood at its high for this year on July 31.
- A raft of US economic data including home sales, business and services conditions and consumer confidence are on tap, as well as updates throughout the week on Cyber Monday sales indicators.
We expect stocks stateside to experience a broadening in what has been a powerful but relatively narrow rally from a sector perspective for the S&P 500 for most of this year. An increase in technology investments across the cyclical and defensive sectors should boost efficiencies and productivity increasing the attractiveness of companies outside the tech and techrelated sectors (information technology and communications services).
The relatively attractive valuations of sectors outside the sectors that harbor the so called “Magnificent Seven” (a group of seven large-cap technology and tech-related names) should contribute to a broader rally as well.
Monetary policy by the Federal Reserve is likely to be supportive of higher bond prices as the central bank moves closer to an end of the current rate hike cycle as inflation is likely to slide towards the 2% inflation target. In our view the Fed is not likely to begin to cut rates until sometime near the end of the fourth quarter of next year.
We look for fixed income to remain highly complementary to equities in construction of prudently diversified portfolios for intermediate to longer term investors with expectations that economic conditions will remain resilient.
We maintain our call to overweight exposure to US equities and fixed income into 2024 as we continue to expect the US economy and markets to lead the world economy into the new normal, which has in our view been the result of monetary policy by the Fed which has shown sensitivity to the effects on the economy of its mandate throughout the current Fed rate hike cycle that has fostered levels of resilience across labor, business and the consumer.
Some reduction in the US dollar’s strength as the US economy cools should increase the attractiveness of emerging markets and developed international markets on a basis of competitive valuations and opportunities both cyclical and secular tied to business and consumer culture as well as demographics draw attention.
From here to the end of this year (2023)
We persist in expecting the S&P 500 to end the year higher from the beginning of this year. Since it’s up 18.7% through Nov. 24 that seems highly likely. The current rally which began on October 27 of this year (after a correction which had taken the S&P 500 down some 10.3% over the course of three months into oversold conditions) has resulted as of last Friday in the market rising 10.7% to regain in just four weeks most of what it had lost over the course of a three month sell off.
Ironically we recall that the correction that began at the end of July was initiated after market participants had begun to buy into the concept of “higher for longer” interest rates. The rally that began since the end of October appears to be turbocharged by expectations that the Fed will cut rates as much as four times in 2024. In our view the Fed which so far has not wavered from its 2% inflation target is unlikely to begin cutting rates until sometime late in the fourth quarter of next year.
Should sentiment revert to “higher for longer interest rates ” or better described as “interest rates that remain at levels higher than what was experienced over the last fifteen years” -- we’d expect some (but not all) of the turbo-charged gains in the four week rally through last Friday to likely be called into question.
In our view it’s ultimately a mix of revenue, earnings and innovation (expected and realized) that drive stock prices higher.
Please look for our 2024 S&P 500 target price and earnings projection along with our sector, style and market capitalization calls for the New Year in early December as per the custom of our market strategy discipline.
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