Market Commentary – January 2024

Given the plethora of recession predictions heading into this year, 2023 stock market performance was nothing short of remarkable. Turbocharged by large technology companies, the S&P 500 logged a 24.2% gain, while the Dow Jones Industrial Average finished up 13.7%.¹ Strong returns indeed.

Not that we like or recommend looking in the rearview mirror, but since it is forecasting season, we thought it would be worth looking back at how well Wall Street Strategists scored with their estimates last year. According to Birinyi and Associates, Strategists entered 2023 in a somber mood. On average, 21 firms published a 2023 year-end target for a below average gain of 6%.² Oops! A bit off the mark.

We mention this not to pick on Strategists. There are many good ones, such as Stifel’s Chief Equity Strategist, Barry Bannister. We would like to congratulate him for recently receiving 2023 “Oracles of Wall Street“ recognition from the Business Insider publication.³ The recognition was given to a select group that made market calls that were considered both accurate and generally against consensus this past year.

Strategists have a very tough, if not impossible, job when it comes to targeting specific numbers. There are too many market-moving events that come into play and are impossible to predict. For instance, how many investors do you know that forecasted the financial crisis in March or the popularity surrounding AI? So instead of considering the Outlook Reports issued this time of year as someone gazing into a crystal ball, consider it for what it is worth, a general consensus of the mood.

As we head into 2024, as usual, there are many things to worry about. It concerns us that investors seem a bit too giddy after the recent market run up. When investors are popping champagne corks, it is time for a bit of caution. The current sanguine environment just possibly could give way to something less favorable. In addition, the end of a Federal Reserve tightening sequence typically marks the start, not the end, of some economic deterioration because of the lag effect.⁴ Then, of course, there is the current geopolitical environment, which is nothing short of scary.

However, on the good news front, according to the Leuthold Group⁴, the last interest rate hike generally marks the turning point for inflation, which would presumably lead to a friendlier interest rate environment. In addition, about two-thirds of the stocks in the S&P underperformed the index last year. This leaves plenty of opportunity for those to catch up.

Our guess is these factors will lead to some portfolio reshuffling the first part of this year. As Stifel Chief Investment Officer Michael O’Keeffe points out, short-term trends often reverse themselves, sometimes year to year. A recent example of this is the technology sector. 2023 was a fantastic year for the “Magnificent Seven“ tech stocks, which had a large influence on the S&P’s performance. However, do you remember 2022? The S&P was down 18.1% largely driven by the same sector.⁵ Things change.

We view this type of environment as opportunity. It allows for profit-taking where appropriate and the use of those funds in areas that appear to still provide ample opportunity.

Since it is a Presidential election year, we know you are wondering what that means for stocks. Yes, it will likely be a wild one, but historically it has been a favorable influence. Since 1928, there have been 24 Presidential election years. The S&P 500 has risen 75% of the time for an average gain of 8%.² For our purposes, this statistic falls into the same category as stock market targets. It is of little use, but it makes for good cocktail party chatter.

Thank you for your business. We appreciate the relationship and especially your trust in us.

Mark A. McClure, AIF® Managing Director, Branch Manager	Michael J. Harkins, AIF® First Vice President/Investments	Nicole Hansen Branch Operations Manager