After a frustrating first 10 months of the year, in which the only bright spots were the Magnificent Seven stocks, the last two months of 2023 completely changed the narrative.
The end-of-year rally pushed the major indexes up to new highs, more stocks reached 52-week highs than at any point since before the pandemic, and fresh all-time highs for the indexes were within striking distance.
What changed? The Fed changed. After nearly two years of hiking short-term interest rates from near zero to the current 5.25% - 5.5% range in an effort to fully extinguish the flames of inflation after it reached a four-decade high in summer 2022, Jerome Powell and company have now thrown on the brakes, and are signaling potential rate cuts in 2024.
And Wall Street loves the newly dovish Fed – plus the fact that there’s no long-feared recession in sight, with a so-called “soft landing” now seeming like a real possibility. Within just a few months, investor sentiment has flipped from bleak and borderline nihilistic to euphoric.
So what does that mean for the rest of 2024? Here at Cabot, we generally shy away from stock market predictions. “My crystal ball is broken” is a very commonly used pet phrase among Cabot analysts. Making bold market predictions is a fool’s errand and, since seemingly every pundit out there makes them, is a practice that should generally be avoided…
(pauses for effect….)
But where’s the fun in that?! The S&P and Dow are now at all-time highs and the year is just getting started, so let’s throw caution to the wind with three fearless stock market predictions for 2024 … all of which I’d take with an entire spoonful of salt.
#1: The S&P Will Be Up Double Digits Again
With the looming specter of the Fed no longer lingering like a dark cloud over the market – if anything, Jerome Powell and company may be a catalyst for good 2024 – investors are more emboldened to buy stocks than they have been in the last two years.
Yes, things feel a bit frothy right now, but as my colleague Mike Cintolo – a well-versed market historian and award-winning market timer – likes to remind his readers, stocks are often most overbought at the start of a new rally. In reality, this rally is just getting started. There are sure to be speed bumps and perhaps even potholes in the year ahead, but conditions are ripe for another 10%-plus gain for the benchmark U.S. index.
#2: Chinese Stocks Will Outperform U.S. Stocks
While I’m predicting a 10-12% gain in U.S. stocks for 2024, I think Chinese stocks will fare even better. China has had a bumpy few years, as its emergence from draconian zero-Covid lockdown measures hasn’t been the overnight stimulant to the Chinese economy that many expected. Instead, the recovery has been slow. And yet, it’s still growing faster than the U.S. economy, with 5.2% GDP growth in 2023, up from 3% in 2022. It’s expected to slow to 4.2% in 2024 – more than double U.S. forecasts. Granted, that’s a far cry from the 7%-plus GDP growth China was accustomed to in the 2010s, but that was never sustainable.
Meanwhile, Chinese stocks remain in the dumps, currently languishing near five-year lows. Chinese stocks, as measured by the Shanghai Stock Exchange, trade at less than 12 times earnings. That’s good value. It’s why I picked China’s burgeoning electric vehicle behemoth BYD, Inc. (BYDDY) as my favorite stock for 2024 despite a lackluster 2023 (+6.5%) and an awful final five months of the year (-22.5% from July 31 to year’s end). There’s nothing wrong with the company; investors simply haven’t bought into China’s economic revival yet. They will soon, as more positive data demonstrating China’s recovery is released, and perhaps more importantly, the narrative of the country’s slower-than-expected recovery fades.
There are plenty of Chinese stocks besides BYDDY that trade on U.S. exchanges (upstart e-commerce company Pinduoduo (PDD) has been a rare Chinese stalwart this year). And right now, they’re trading at a major discount.
#3: Bitcoin Will Hit New Highs – and Then Crash Again
Let me say this up front: I’m not a big believer in Bitcoin. It has no real-world utility – folks aren’t buying groceries or pumping gas with Bitcoin – and it tends to come crashing back to earth every time it becomes mainstream enough that your newbie-investor friends start asking you about it. And that will surely happen again. But not until Bitcoin prices hit new highs.
That’s been the pattern: When stocks rise, Bitcoin accelerates even faster as a byproduct of increased investor appetites. It’s purely a bull market product, and as noted earlier, we are now fully in a bull market – and likely still in the early stages. Bitcoin prices have already more than doubled, up 150% in 2023. It would take another 58% run-up for bitcoin to eclipse its late-2021 highs above 65,000. I think it’ll get there, perhaps in the first half of the year. But as soon as the market starts showing weakness again, Bitcoin prices will likely make yet another hasty retreat.
So, if you’re a trader, you could probably buy Bitcoin now even near 52-week highs and make a tidy profit the first half of the year. But for long-term investors, Bitcoin is not – and may never be – a viable buy-and-hold play.
