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Commentary: January 2024

January 25, 2024

The forecasts for ‘Recession’ or ‘No Recession’ continue to be mixed.

As you know by now, Santa Claus came early to the markets in 2023. Until November, if you took Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA), Google (GOOG), and Meta/Facebook (META) out of the S&P 500, the remaining 493 stocks had averaged out to below even for the year.

The S&P was up around 15% in the last eight weeks of the year as the rally broadened out. This was fueled by a combination of better-than-expected economic strength and lower interest rates.

In my opinion, the direction of inflation going forward will be a significant influence on the stock and bond markets. The following are some reasons to be encouraged on that front.

  • June 2022: [CPI] 9.1%; [Food] 10.4%; [Energy] 41.6%; [All Others] 5.9%.
  • November 2023: [CPI] 3.1%; [Food] 2.9%; [Energy] -5.4%; [All Others] 4.0%.
  • The outlook for food and energy prices is downward.
  • Job openings are declining while the number of people working is increasing. This is dis-inflationary. If not clear to you, don’t worry. It took me a while to understand it.

Bottom line: We could be heading into a “Goldilocks” environment with reasonable growth and low inflation, which would be good for both stocks and bonds.

Historically speaking, it's important to note that presidential election years have been the weakest for the stock market. Speaking of the election this year, I think regardless of how things evolve, they will undoubtedly contribute to market volatility. (I am rather surprised that the market forecasts I’ve been inundated by lately don’t point this out.) 

The Magnificent 7

 As mentioned, the appreciation of the S&P 500 in 2023 was exceptionally concentrated in what have been labeled the “Magnificent 7”. Ironically, I’ve heard nothing reflecting how those stocks performed in 2022. As you will note in the table below, ALL were down significantly in 2022 compared to 2021 (Figure 1).

Sure, 2023 was a “great year” for these stocks. But compared to just two years prior, three of the seven stocks were below their 2021 closing price. Tesla was down nearly 30%! Only Nvidia was up substantially, driven primarily by its dominance in AI-capable computer GPUs (graphics processing unit).

At the end of 2023, more than 70% of the stocks in the S&P 500 underperformed the index in 2023. When we zoom out further (Figure 2), we can see that one must look back two-and-a-half decades to find a year that remotely tickles this low level of outperforming stocks. Even 2020, the first year of the COVID pandemic was not this dramatic.

(If you really want to know how I feel about forecasts, check out my post on LinkedIn titled The Truth About Forecasts, and connect with me while you are at it.)

3 Topics I Find Interesting Right Now

  1. Existing housing supply could stay low for years. Listings are at a 40-year low. One of the main contributors is that borrowers are, for lack of better terms, “trapped” in their low-rate mortgages. 80% of current mortgages have interest rates of 4% or less. Moreover, 39% of homes have been paid off. This means that anyone who wants to move (that is, non-cash buyers) will finance at a substantially higher rate (though rates have trending downward from the decades-highs witnessed last fall).

  2. Residential Natural Gas prices are currently 16.65% below the prices seen this time last year ( This is good news for the winter.

  3. AI (artificial intelligence) will require a tremendous amount of energy. I’ve read multiple opinions that the electrical grid capacity is already below the expected demand. In addition to EVs, which suddenly do not seem to be as popular as expected, several places in the country have banned natural gas appliances in new construction.

25 Years In The Making

For 25 years, I have written a quarterly market newsletter for clients and prospects. I just so happen to stumble upon the one I wrote at the close of 1999, and I want to resurface it. 

Background: The markets declined substantially in Q3 of 1999 over the fear of computer-controlled systems may go off-the-rails when the year date switched from ’99 to ’00 in what was dubbed the "Y2K Bug."

Here's a refresher from the National Museum of American History from the Smithsonian Institute. 

Market Report: December 22, 1999