Market Insights and Outlook for 2024
December 28, 2023
As we entered 2023, many projections hinted at a potential recession, a bearish market, and oil prices soaring to $100 per barrel. Surprisingly, none of these scenarios unfolded. Presently, the prevailing sentiment is an anticipation of the market rally persisting, with speculations even pointing towards potential rate cuts by the Fed in 2024.
Despite the robust performance of the US economy, I don't foresee an imminent downturn in the markets. However, considering the 2024 S&P 500 earnings growth rate projection of 12.27% and the current trading position at 8.5% above fair market value, I anticipate modest gains of 2 to 4% for the S&P 500 in the coming year.
On the topic of rate cuts, the economic landscape appears stable, with inflation decreasing from 9% to 3.14%, unemployment at 3.7%, and positive GDP growth. Given these indicators, there seems to be little rationale for the Fed to lower rates. I've consistently advocated for a halt in rate hikes to prevent asset devaluation and potential repercussions on the banking sector. Now that we've reached the terminal rate without detrimental effects on the US economy, I find satisfaction in this approach.
Additionally, I want to draw attention to the inverted yield curve, where short-term rates surpass long-term rates. This anomaly is a concern, and its normalization would likely entail either a decrease in short-term rates or an increase in long-term rates. If the economy remains stable and the Fed avoids rate cuts, the latter scenario could lead to another challenging year for the bond market.
A notable worry on my radar is the widespread market consensus, largely factored into current valuations, which centers on the anticipation of a forthcoming rate cuts. Therefore, any departure from this anticipated path by the Federal Reserve has the potential to act as a substantial bearish indicator for equities.
In summary, while I don't foresee a significant market pullback, I also don't anticipate a sustained rally. Valuation is crucial, particularly in 2024. I firmly believe that this year will underscore the enduring importance of fundamental investing, emphasizing valuation, consistent earnings, dividend growth, and maintaining a healthy balance sheet to navigate uncertainties.
Regarding bonds, I recommend focusing on the 1 to 6-month range where rates are highest. With a potential 5% return compared to the projected 2 to 4% upside for the S&P 500, it presents a viable option.
Alpha Capital Wealth Advisors, LLC is a registered investment adviser. Informaon presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless
otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
