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Forecasting the stock market is hard.
There are millions of factors an investor needs to take into account. Corporate earnings, monetary policy, geopolitics, and government action are just a few.
I find it easier when I “bucket” this analysis into three groups: fundamentals, techncials, and sentiment.
And all three of these buckets are pointing to higher stocks in 2024…
…and I’ll explain exactly why now.
Reason #1: These “Spending Booms” Will Continue
There are two spending booms happening in the US right now.
The first most of you have heard of: artificial intelligence. 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. This will likely drive gains for the Magnificent 7 stocks, many of which I own in my personal investing portfolio.
The second spending boom is one many of you are missing. For instance, the Baby Boomers – or the generation born between 1946 and 1964 – are currently 59-77 years old.
This demographic cohort had a net worth of $73.1 trillion at the end of last year. That accounted for over half of all net worth in the US:
And as more of the Boomer generation retire, the more they are spending on travel (including airfare, accommodations, and cruises), eating out, and health care.
We’ve seen this in the economic data for nearly a year. And I don’t expect it to slow down any time soon.
Reason #2: Positive Technicals and “Seasonality”
Anyone who follows my work knows I use a variety of factors in my analysis.
And one I lean on heavily to understand the overall “trend” in the market is technical analysis.
While some view technical analysis as “astrology for men,” I have made a lot of money using it in my career. For example, currently the S&P 500 is in a technical uptrend.
That is defined by the following:
Upward sloping 200-day moving average
15-day moving average trending above the 50-day moving average
50-day moving average trending above the 200-day moving average
Until this trend breaks, I will remain bullish on stocks in the near-term.
Second is we’re entering the 4th year of the presidential election market cycle. The pre-election and election year is often considered the "sweet spot" in the Presidential Election Cycle Theory.
That’s because it’s the year where the stock market has historically experienced its strongest gains.
I don’t usually put too much weight on “seasonality.” However, 2023 followed previous presidential election cycles nearly perfectly.
If that trend holds, the next few months will probably be “flat” for stocks:
However, the second half of the year should be strong for markets.
Reason #3: Wall Street is Bearish
Wall Street's forecasts for 2024 are about as gloomy as they come.
When taken the average of all Wall Street price targets, these banks expect a mere +1% gain in 2024.
But there's a curious pattern I've noticed over the years. When Wall Street analysts are collectively pessimistic, it often signals a bullish opportunity for savvy investors.
And the data backs up this theory; years with the lowest expectations returned a median of +12%, while years with the highest expectations returned +2%.
This counterintuitive trend suggests that when analysts are collectively downbeat, it creates a low bar that's easier to surpass, leading to unexpected market rallies.
Keep Your Eye on the Prize
The outlook for 2024 looks promising based on these three “buckets.”
We've got the twin spending booms in AI and by the Baby Boomers fueling economic activity.
Technical indicators are aligning in a promising pattern, especially considering we're entering the favorable phase of the presidential election cycle.
And to top it off, Wall Street's bearish outlook might just be the contrarian signal we need for a strong market performance.
For those willing to look beyond the surface and challenge the consensus, 2024 could be a year of opportunity. And I’m putting my money where my mouth is (you can see my full portfolio here).
And I don’t plan to miss it.
Stay safe out there,
Robert