To quote the great Yogi Berra, “it’s tough to make predictions, especially about the future.”
But, there are a number of important themes that should drive markets in 2024. The elephants in the forecasting room are the so-called Magnificent Seven (AAPL, GOOGL, MSFT, AMZN, META, TSLA and NVDA) which soared 105% in 2023 versus the S&P 500’s 24%.
These seven stocks make up roughly 30% of the S&P 500, so even that index’s returns are suspect. Without the Mag 7, SPX gained only 9.94%. So, don’t chastise your investment manager if they returned only 10% last year by exercising prudent diversification.
Will the rest of the market catch up to the Mag 7 or will the Mag 7 “catch down” to the rest of the market? Investors tempted to join the party and pile into the Mag 7 should remember that, in 2022, these same stocks plunged 40% compared to the rest of the market’s 12% losses.
From a fundamental standpoint, their price to earnings multiples are historically quite high, meaning that any disappointments will be dealt with harshly. We saw this last week with AAPL. While SPX fell as much as 2.2% from its highs, AAPL was off a whopping 9.7%.
We’ll spend the next several days examining the equity charts for clues as to what to expect in the year ahead. We’ll also zero in on the currencies, commodities and interest rates which greatly influence equity values.
As always, our goal is to get most them right most of the time, as we did in 2023 [see: The Year in Review – 2023.] Chart patterns and technical analysis are great tools for doing so. We’ll start with a very obvious chart pattern for SPX which should make all the difference between a stellar year or a slump. It ties in with another chart pattern dating back to the Great Depression.
The most important chart pattern for SPX is the large Inverted H&S Pattern which completed on Dec 11.
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It reached 22.04 on Monday before and has bounced 2.5% this morning.
Likewise, gold reversed sharply off our 2152 target from October and dropped 160, but hasn’t quite reached our next lower target. It is an interesting development, and one which makes a statement about the USD and, possibly, inflation.
