Weekly Recap

All three major indices hit 52-week highs this week, riding the market's November rally toward year-end. The index is on track to deliver its seventh-consecutive week of gains. Although the full effects of rate hikes haven't fully been felt, Powell acknowledged, economic data and the Fed's dovish stance hint at a growing economic slowdown, fueling investor optimism that rates might be cut in 2024.

CPI and PPI landed in line with or slightly below estimates on Tuesday morning. This, coupled with Powell's announcement on Wednesday about three potential rate cuts next year, triggered a market surge.

New 52-week highs were seen across sectors, from bank stocks like JPM, WFC, and GS to housing plays like HD, TOL, and SPG, and even the semiconductor giants AMD, AVGO, and INTC. This list of winners extends across sectors, suggesting a broad-based rally fueled by optimism for 2024.

There's no denying Technology's reign as the 2023 champion. The QQQs and XLK both have soared 50% plus YTD, with AI and ChatGPT single-handedly shielding the market from recession.

As the year winds down and Powell's FOMC adopts its most dovish stance since rate hikes began, investors seek to rebalance, secure profits (or salvage losses), and chart new paths for 2024.

Signs of migration are evident. Gold hit record highs recently, a haven for investors seeking safety and fleeing risk. The S&P 500 equal-weight index (RSP) outperforms its cap-weighted cousin (SPY) by nearly 3% since November, hinting at a broad rally fueled by hopes of 2024 rate cuts.

Energy still seems undervalued, with XLE trading at just 8x P/E. This, coupled with the sector's recent M&A flurry, indicates potential for growth.

Healthcare and biotech, represented by the IBB, have plummeted nearly 14% since 2022, lagging far behind the S&P's 2% dip. Could this be a ripe opportunity?

My eye for next week focuses on four industries uniquely impacted by the idea of 2024 interest rate cuts. A dovish Fed, favoring market growth, would benefit these cyclical sectors:

• Utilities: This historically debt-heavy industry thrives on lower rates, as it translates to better returns and profits for companies.

• REITs, Homebuilders, and Housing Stocks: Falling rates trigger lower mortgage rates, potentially stabilizing supply and reviving demand in a pivoting economy. Keep an eye on homebuilders and REITS, with PLD and HD as potential favorites.

• Banks: Lower rates can reinvigorate capital markets (think GS and MS) and boost loan demand. Regional banks could also see recovery momentum from earlier losses, leading the charge.

• Small Caps: The IWM's recent outperformance, nearly doubling the Nasdaq and S&P in the past week, is telling. High-growth companies, like small caps, tend to perform better in low-rate environments, using debt strategically to fuel expansion. Improved ROIC (Return on Invested Capital) often translates to higher stock prices in this scenario.

As markets charge into year-end, I have been searching for high-quality companies in the dog house or lagging behind the general rally. These under appreciated names could deliver compelling returns in the next leg of the climb.

Here are a few examples that have caught my eye:

• Alphabet (GOOGL): Google shot up to $138 last week after announcing its new AI product, Gemini. While it's since pulled back to the low $130s, it remains significantly behind the market, trailing the S&P 500's 11% gain since November. Arguably the cheapest among the "Magnificent 7" tech giants, Google's potential for growth through AI and increasing advertising spend heading into 2024 makes the stock look like a promising play.

• Celsius Holdings (CELH): Celsius is down 23% since September and has been consolidating in the $50 range since November. While the 3:1 stock split and insider sell-offs contributed to the decline, CELH's $12 billion market cap and continued success with its PepsiCo partnership suggest significant future growth potential and international expansion.

• Walmart (WMT): Despite holiday cheer, Walmart has lagged behind, pulling back 6.5% since November. This contrasts sharply with its competitor, Costco (COST), trading at a hefty 40x P/E and up 15% in the same period. While consumer sentiment remains tepid, Walmart's 21.4x P/E offers relative value. Additionally, Sams Club continues to excel, and analyst estimates predict solid growth (sales 3-5% YoY, EPS 8-10% YoY) heading into 2024. This convergence of factors suggests Walmart could climb back towards the $160s early next year.

Investors often forget that the market acts as a leading indicator for the economy. This forgetfulness has proved costly for bears, as the S&P 500 has surged 11% since November. Powell's explicit statement about interest rates nearing or at their peak, and his caution regarding holding them high for too long, fueled this rally – and rightfully so.



The chart confirms this historical pattern. Equities have consistently outperformed during periods of rate pauses, as the market anticipates future rate cuts and reduced costs of capital for growth.

In Weekend favorites, I share my thoughts on events I'm attending, the new series I'm planning to marathon, the movie I'm dying to see, restaurant craving to taste, or the big game I won't miss.

This weekend's all about sports! Saturday kicks off with a colossal top-5 showdown: the loaded #1 Wildcats take on Zach Edey and the #3 Purdue Boilermakers. Personally, I doubt Purdue can match the Cats' firepower, but Tommy Lloyd and company better bring their A-game – playing in Gainbridge Fieldhouse is no joke. Then, Saturday night brings us a crazy UFC 296 lineup, headlined by fights by Leon "Rocky" Edwards and Paddy "the baddy" Pimblett . Expect them both to dismantle their opponents in style and put on a great show. Finally, this weekend marks the start of fantasy football playoffs – arguably the best time of year! Good luck to all competitors, may the best team reign supreme.

Next week, I'm unveiling a must-try restaurant that's sadly not (yet!) in Tucson, but it's one of my new favorites I can't wait to share!