What a difference a year makes.
After a painful knockdown in 2022, hardly anyone expected 2023 to be a comeback year for equity investors.
But it was. And 2024’s going to be even better.
Bonds suffered in 2022 thanks to the Fed’s miscalculation of inflation. Then incessant rate hiking hit stocks hard.
The S&P 500 fell 18.1% in 2022, and the tech-heavy Nasdaq Composite fell 33.5%.
That’s a smackdown.
2023 was supposed to see more of the same.
Investors were scared that high inflation would collide with a recession… which would spawn stagflation and further upend bonds and stocks.
But that didn’t happen.
Not even close.
Riches for the Brave
With economic growth defying consensus expectations and labor markets leading the way… a bunch of brave speculators waded into a handful of stocks most likely to succeed in an AI-centric future.
As the so-called Magnificent Seven attracted more attention, boosting major market measures, a new bull market emerged out of the narrowly focused March to July upswing.
But the Fed wasn’t done dashing hopes, as “higher for longer” became the inflation fighters’ slogan. And again, stocks and bonds fell. Until, that is, inflation measures started showing signs of slowing.
And that’s all it took.
By late October, with the 10-year Treasury once again testing resistance at 5%, the Fed acknowledged inflation was in a downtrend. Bond investors took that cue to mean rates had peaked.
And the money started flowing… into bonds and stocks.
The year’s not quite over yet, but it sure looks like the S&P 500 will end 2023 up more than 20% and the Nasdaq Composite more than 40%.
A very good year, indeed.
And we’re just getting started.
A Runway to Success
With inflation and interest rates falling, 2024 has a runway for similar 20%-plus gains.
But it’s not just falling inflation and rates that have me excited. Technological advances across the economy and around the world – in particular, AI incorporation and applications – will power new products and boost productivity, profits and stock prices.
History’s on my side here.
In the past 95 years, the S&P 500 has seen back-to-back 20%-plus gains nine times. Four of them happened consecutively in the 1990s.
They occurred in 1995 (37%), 1996 (23%), 1997 (33%), 1998 (28%) and 1999 (21%).
Those gains were driven by technology, the internet and everything the World Wide Web spawned… especially the increased productivity and profits for companies in every industry.
With that backdrop, I’m excited for 2024.
Falling rates will push investors off the money market sidelines and into stocks (and bonds too).
Cash will be trash. Investors will chase stock performance. Benchmarks will soar.
Over the summer, I told Stuart Varney, the host of Fox Business’ Varney & Co., that it was time for sidelined investors to go back to buying the dips.
That call is even more urgent now.
It’s going to be a great year… to buy every dip… and mint a lot of money.
I hope you’re excited.
The race to riches is on.
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Source: Total Wealth Research