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I got a lot of things right last year.
That includes big calls like we’re at the start of a new crypto cycle, the US would not fall into recession, and that stocks were in a new bull market.
Doesn’t mean I got everything right… particularly my call that bonds would be the best performing asset class in 2023.
But I got a lot more right than wrong. That’s a key reason my portfolio - and the portfolios of my Patreon members - crushed the S&P 500 this year.
So what do I see happening in 2024? I have a few ideas.
Prediction #1: The Bull Market Will Continue
I’m fond of going “against the consensus.”
Nearly every Wall Street investment bank was bearish going into 2023. This made sense as interest rates were at their highest level in decades, inflation was at a 40-year high, and stock were coming off their worst year since 2008.
But when everyone thinks one way, the opposite often happens. That’s exactly what happened in 2023 considering the S&P 500 finished +24%:
Those same Wall Street banks are “neutral” going into 2024. In fact, the average target price for the S&P 500 from top investment banks is 4,800.
Considering the index opened 2024 at 4,741, Wall Street is expecting a 0% gain in 2024:
While I am not expecting another +24% gain in 2024 - although it’s definitely possible - I do expect the S&P 500 to finish higher than where it started. And the math is in my favor as the S&P 500 has delivered a positive return 73% of all years since 1921:
I’m happy to ride the long-term trend and will continue to hold my long-term investment positions (you can see my full investment portfolio here).
Prediction #2: The “Magnificent 7” Will Beat the S&P 493
The biggest story in stocks for 2023 was the boom in artificial intelligence.
This was kicked off in late 2022 when OpenAI introduced ChatGPT. This led to a surge in what are now known as the “Magnificent 7’ stocks…
…which significantly outperformed the rest of the S&P 500 in 2023:
I believe the AI boom is real and will lead to a major productivity and spending boom in the US, particularly at tech companies. That means the companies that provide the essential building blocks of AI, such as hardware, software, and specialized services, are poised to benefit significantly from this trend.
It also means major tech companies will need fewer workers to generate the same earnings, thus swelling their profit margins (and share prices).
The Magnificent 7 stocks are at the forefront of both trends. And while markets have priced in a lot of this growth, I expect AI to comprise ~10% of all IT budgets in 2024.
That’s up from 1$ in 2023 and represents a $1 trillion spending boom over the next decade.
So while I expect the market broadly to do well in 2023, I expect the Magnificent 7 to once again lead the way.
Prediction #3: Cash Will Be Trash in 2024
A very smart investor once told me, “cash is a call option on future opportunities.”
This means that holding cash provides you with the flexibility to seize opportunities when they arise. Just like a call option in the world of finance allows you to buy an asset at a predetermined price in the future, having cash on hand enables you to take advantage of investments or ventures that may come your way.
On paper, 2023 should have been the best year in decades to hold cash. Interest rates were at their highest level in decades, meaning you could get over 5% risk-free on your money.
This is a key reason cash in money market funds surpassed $8 trillion this year:
Despite this attractive parking spot for cash, stocks had on of their best years of the last decade. This brings up the concept of “opportunity cost.”
Opportunity cost is the trade-off you make when choosing one option over another. In the case of holding cash, the opportunity cost is the potential return you forgo by not investing that cash in other assets like stocks, bonds, or real estate.
In 2023, while cash may have seemed like a safe and attractive option, it came at a significant cost. While you could have earned a relatively high return on your cash, the opportunity to participate in a roaring bull market was missed. The S&P 500 delivered +24%, outperforming the returns that cash by nearly a factor of five.
And I don’t expect this dynamic to change in 2024. So while I will hold some cash, 90% or more of my investible assets will remain in stocks, bonds, and crypto.
It’s OK to Change Your Mind
Investing in stocks, crypto, or any other asset class can be an emotional roller coaster.
However, one of the hallmarks of successful investors is their ability to remain unemotional in the face of market fluctuations.
Emotions cloud our judgment and lead to impulsive actions that we later regret.
During periods of market volatility, it's crucial to stick to your investment plan and not let short-term fluctuations drive your decisions. Following my long-term investing plan in 2023 was a key reason I well outperformed the S&P 500.
And that included going back on some “predictions” I made earlier in the year. My goal is to make money in the markets and to help you do the same. I have no issue doing a complete 180 on a call if the data or my thinking changes.
So while I am making some “predictions” today, remember those ideas could change in an instant.
But if that happens, you’ll be the first to know about it.
Stay safe out there,
Robert