I hope everyone here has been having an amazing year this year. Heading into the year, the economists were all expecting a recession, that the market was going to crash further beyond the closing low 3,577.04 made on October 12, 2022. As the year continued, especially towards the end of March when the MA 200 started sloping upwards which signifies a long term uptrend, most bears were still bearish and they insisted that it was a bear market rally.
The AI theme started to play out around late May after Nvidia reported earnings and the stock jumped 24% after revenue surprise of 10% and earnings surprise of 18%. Again the bears were calling that AI is a bubble, and the gains driven by the Magnificent Seven of Apple, Microsoft, Nvidia, Meta, Alphabet, Amazon & Tesla was what was mainly driving the market up, and the lack of breath across the broader S&P 500 was totally unsustainable and it would eventually give up the gains.
Then we had the usually summer fade away after market peaked on July 31, 2023 at 4,588.97 points, the S&P 500 entered correction territory on October 27, 2023 at a closing low of 4,117.36. And the bears again warned that the market was going to crash as the US 10 year yield was topping 5%. Since it entered correction, the market as of Monday December 18, 2023 close has gained 15.1%.
S&P 500 close as of Dec 18, 2023
If you had continued to listen to the doomsday theorists instead of focusing on S&P earnings and focused on the technicals of the price action, and remained invested, you would have done very well today!
2023 Q3 earnings growth turned positive
From Lipper Alpha Insight, S&P 500 Q3 2023 delivered another strong quarter marked by:
• Y/Y earnings growth of +6.3% (highest since 2022 Q2).
• Y/Y earnings ex-energy growth of +11.6% (highest since 2021 Q4).
• Q/Q earnings growth of +7.8% (highest since 2021 Q1).
• Earnings beat rate of 81.3% (highest since 2021 Q2).
• Earnings surprise rate of +7.1% (2nd highest since 2021 Q3).
• Blended aggregate earnings of $487.1 billion (an all-time high).
Looking back at S&P 500 earnings for the past quarters, you can see that earnings growth was negative from 2022Q4 to 2023Q2, and from then onwards earnings growth is expected to be positive.
Tech, Comm Svcs & Consumer Dis leads 2023
The year-to-date performance so far has seen technology gain by over 51%, followed by communication services (+45.5%) & consumer discretionary (+34.2%). However believe that the opportunities for next year could possibly be in healthcare and consumer staples sectors.
if the economy has no recession, Then technology, communication services, and consumer discretionary would continue to outperform in 2024, partly driven by AI. However if there were some form of a recession, healthcare and consumer staples would allow you to protect your portfolio, as these are often defensive sectors that might even rise during an economic downturn.
The Fed has projected that the median rate at the end of 2024 would be at 4.6%, implying 3 rate cuts of 25 basis points next year. However the Fed funds futures paint a slightly different story, that traders are expecting up to 6 rate cuts of 25 basis points next year. Should the Fed not cut rates fast enough, there would likely be some volatility next year that would present buying opportunities, provided the investor is in it for the long term, as eventually the rates would be lowered as inflation lowers towards 2%. If you had missed the boat in 2023, and especially in late October 2023, this would be your buy signal. Lastly stop listening to the bears, but instead focus on earnings and price action.
Comments
hope 2024 can be better!!