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One in all my earliest influences within the funding enterprise was Byron Wien, the previous Morgan Stanley and Blackstone strategist, who was energetic within the business till his passing in October of this yr. Mr. Wien was recognized throughout Wall Avenue for his annual listing of prime surprises. Admittedly, every thing on the listing most likely had a lower than 50% probability of occurring. However at this stage of the market cycle for shares and bonds, has there ever been a greater time to account upfront for the sudden? So, as each an homage to an investing legend, and to offer a helpful “what to watch out for that you may not expect” listing for 2024, right here is my model of the highest 10 surprises I am for the brand new yr.
Surprises versus predictions, and what issues
These are NOT issues I count on to occur. That is why they’re referred to as “surprises.” However what Byron Wien did so properly is to grasp what traders are assuming will possible occur. And with social media throughout us, we traders get so many opinions and so shortly. So that is about preparedness, not “making calls” on issues, which is approach overrated in investing.
I feel a great way for traders to start out 2024 is to make a decision: to give attention to what issues. An excessive amount of consideration is given to “that person said this would happen, and it didn’t.” Fashionable markets should not like they was once. We do not have to throw out the previous guidelines, however we do have to be ready for something. I name it being “flexible and adaptive.” It’s not a components to make 50% in a yr just like the one which simply ended, nevertheless it goes a great distance towards assembly my first funding goal for myself: ABL – keep away from huge loss.
I answered a number of hundred questions and feedback final yr, and I discover that some traders could also be placing an excessive amount of emphasis on who stated what and when, and specializing in a really restricted a part of the worldwide funding panorama. Markets are a lot extra fluid than they had been prior to now. So, for instance, predictions about what the S&P 500 will do for everything of 2024 means nothing until you make investments yr to yr.
I’m a 59 yr previous semi-retired man who has invested professionally for 30 years. I simply cannot get sufficient of following markets, actively investing for my circle of relatives, mentoring others and sharing my what I’ve discovered from 37 years of expertise (the successes and oh the various failures).
To me, investing is just not about “picking winners” and forecasting. It’s a couple of cumulative set of choices one makes, that every one goes again to an funding course of. I’ve one, however I do not count on anybody else to repeat it (although they’re welcome to). I simply need people to take from it what they suppose may help them.
It follows that going into 2024 or every other yr, crucial factor any investor can do: pay attention to not solely the plain, however not so apparent potentialities for what can impression your cash. I preserve an inventory I name the Market Outlook Issue Overview (MOFO) which is the place a few of these concepts come from. However I’m writing them right here when it comes to surprises, somewhat than on the MOFO, the place I merely listing the highest 10 elements I feel are influencing the markets at present.
With that, and a nod to the late nice Byron Wien, listed below are 10 occasions which might be fairly doable in 2024 and would shock traders. So it’s higher to contemplate what would occur to your portfolio in the event that they did, somewhat than suppose to your self “that can’t happen.” As a result of that is investing, the place something can occur!
High 10 Surprises for 2024
1. The US inventory market collapses in January
The bulls are assured, the bears are hibernating after a yr the place the recession didn’t arrive. As with every of the ten gadgets on this listing, we now have to return to an previous Wall Avenue saying (paraphrasing): “the market always does what it can to frustrate the most people.” Would not it simply be a freakout if the S&P 500, Nasdaq 100 and small cap shares fall straight down throughout January? That is what occurred simply 2 years in the past, when traders got here into 2022 driving excessive, solely to have the market peak on January 4 of that yr. 2 years later, it’s nonetheless under that peak, albeit barely. A fade in January could be a harmful “double top” to we technicians.
2. The Magnificent 7 leads spikes increased to start out the yr, however out of the blue rolls over and the Invesco QQQ Belief (QQQ), which tracks the Nasdaq 100 index, ends the yr down at the least 20%.
That is basically the yr 2000 situation yet again. I’ve talked about this in latest articles, and I feel it’s really a a lot larger potential danger than many suppose. 2023 and 1999 had loads in frequent, from a sentiment/speculative/purchase each dip standpoint.
3. The US Greenback continues its fade, however then accelerates to the draw back, making non-US shares a “gimme” to beat the S&P 500, for the primary time shortly.
Why would possibly this happen and shock individuals? As a result of traders have change into so used to the US authorities kicking the can down the street on spending, if the market lastly begins to care extra about this than it has prior to now, it’ll damage the US Greenback’s worth additional. What is the “canary in a coal mine” right here? 1-month US Treasury payments ended 2023 at a charge of 5.6%. That is a “tell” to me, and makes this situation worthy of the shock listing.
4. Inflation comes again, and it is worse than earlier than
The prevailing market opinion is that inflation is within the rear view mirror, and thus long-term rates of interest ought to proceed to plunge in 2024, as they did in late 2023. That is what they thought within the Nineteen Seventies. Perhaps I am watching too many last-minute comebacks in sports activities, nevertheless it appears to me that there was a bit an excessive amount of victory dancing, together with by the Fed. And paradoxically, the late-2023 inventory market and bond worth celebration might renew the previous “animal spirits” ambiance, the place traders really feel emboldened. And what would possibly that result in? Greater inflation.
5. The Dow Jones Industrial Common has its highest-ever outperformance of the Nasdaq 100 Index
As I’ve written right here loads lately, I nonetheless just like the Dow, and suppose it tells us extra about how the “stock market” is doing than the S&P 500, which at present has its highest holdings overlap with the Nasdaq 100 in historical past (about 45%). The Dow lagged in 2023, and usually lags bull markets. However because the lag results of these 11 Fed charge cuts continues to bleed into the economic system, we might see traders flock to the relative stability in money flows and enterprise moats that many of the 30 Dow shares have.
6. Bitcoin ETFs get permitted in bunches by the SEC… and Bitcoin promptly falls under 30,000
I am a fan of the way forward for the blockchain, and as of this writing, personal each a Bitcoin-linked ETF (BITO) and a blockchain ETF (BLOK) in my private portfolio, via shares and/or name choices. However I don’t for a minute contemplate them to be investments simply but. There’s an excessive amount of Dot-Com period, “can’t go wrong” sentiment round this entire a part of the market. So whereas I am all the time glad to purchase a superb tactical/buying and selling chart as I did with these, I additionally preserve them on a super-short leash. And there may be doubtlessly the beginning of a topping course of happening right here. Would this be the primary time the “obvious” factor to personal going right into a yr turned out to be one of many worst? In no way!
7. The “refinancing wall” of company bonds shocks the market sooner than anticipated
The rationale some are befuddled by the rally in small caps, however particularly the Russell 2000 small cap index, is as a result of that index is, essentially talking extra like small “c_ap” than small cap if you recognize what I imply (trace: lacking letter is “r”). So a spike that recovers only a fraction of the heavy losses on this market section is nice, however at this level appears extra prefer it was a part of a manufactured “small cap effect” in that traders pile into small caps close to yr finish. The explanations for have modified over the a long time, however issues like this and seasonality and different market historical past tends to be a really highly effective pressure in a 24/7, momentum-driven investing world that we now have now. And there’s a large situation for smaller companies that should refinance numerous maturing debt simply to remain in enterprise. That implies that any sort of macro pressure that disrupts sentiment might produce a “buyer’s strike,” simply on the incorrect time. This is able to hit small cap corporations which might be unstable, in addition to junk bonds.
8. A major geopolitical occasion comes out of nowhere, and it’s not one of many present sizzling spots
It does not come from Ukraine-Russia, funding adjustments from the US and others for that warfare or the Israel-Hamas warfare. It comes from someplace that the market does not even have on its radar but. As a result of that’s typically the way it occurs. Not a pandemic, however simply as “out of left field” at a time when, as in early 2020, the worldwide inventory market was already stretched and weak. I do consider (and we’ll by no means know for certain) that 2020 would have been a tough yr for shares even when the pandemic didn’t happen. If something, the rebound was a lot stronger than if the economic system didn’t falter and free cash was not handed out again and again. A extra pure financial “event” was more and more being signaled in early 2020, however the causes stopped mattering when Covid hit.
9. A serious financial institution goes below, and this time authorities cannot cease the unfold
“Major” may very well be an enormous regional or perhaps a cash heart financial institution, within the US or overseas. We clearly dodged a bullet in March 2023 with the collapse of some banks, however their rescue was so fast, it was shortly a forgotten situation. So was Bear Stearns, after which Lehman occurred. I am not anticipating something on that degree, however in contrast to many in my discipline, I’m a great distance from ruling it out in 2024 or 2025. So many banks nonetheless have a lot stacked in opposition to them, particularly if long-term charges transfer up once more.
10. Neither Trump nor Biden finally ends up being his celebration’s nominee for President
This isn’t my thought for a shock. I completely, positively stole it from veteran market guru Doug Kass, who’s certainly one of my favorites. He postulated this in his annual surprises listing and I immediately stated to myself, “yes it would be a shock to the markets, and yes it could happen.” Not will, however might. I hesitated to even “go there” as a result of I by no means discuss politics on this house. However with 2 fellas of the ages of that pair, and a few viable second-stringers rising in every celebration, would not that be a tornado in 2024?!
So, that is the listing. I might love to listen to yours within the remark part. Most significantly, I hope that the primary message of this text: NOT the specifics of the “surprise” listing, however the idea of accounting upfront for a lot of doable situations, so they do not shock you and your cash, was useful to learn.
This is to a peaceable, affluent and gratifying new yr!
Editor’s Word: This text covers a number of microcap shares. Please pay attention to the dangers related to these shares.
