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Weekly Update (12-05 : 12-12): No News Is…
· As we approach the holidays and end of the calendar year, investor positioning may not change much, given high embedded gains that are likely in the “magnificent 7” large cap growth stocks.
· There may be some more tax-loss selling on the horizon before January, but given the strong 8% returns in the market for December, we expect not too many opportunities are left for harvesting.
· November and December (so far) have largely played out as our bullish thesis has become more popular among Wall Street participants.
· In the rally that started last month, we saw much broader participation in the market, outside of merely the magnificent 7 stocks. This could imply that the market is starting to embrace this as a bull market.
· Top investment banks and sell-side analysts have begun putting out their 2024 year-end price targets. There are firms such as Deutsche Bank and BofA expecting the S&P 500 to reach 5,000 next year (appx a 10% return from these levels), then at the low end, there are firms such as JP Morgan who expects the market could retrace back down to 3,500 (near the 2022 lows.)
· Given the preponderance of evidence which would include –
i. a strong economy that does not look to be overheating and could continue 2% growth (which would not necessitate a Fed interest rate move upward)
ii. inflation that is cooling to target levels, and
iii. earnings that are expected to grow 10% or more in 2024 – it seems logical to assume that this year could just be another average year for the stock market (one in which the broad averages may go up 8-12%).
· If the economy remains strong, one viable thesis could be that the “broadening” market cap and sector exposure could continue, and engender widespread participation from small-caps, mid-caps, sectors that have been unpopular such as real-estate, healthcare, utilities, and consumer staples. This could also be a catalytic set up for large cap value stocks to finally do well (after the month of November, the Dow Jones is now up 9% again for the year).
· We still remain more cautious on international stocks for the time being and would like to see the US Dollar demonstrably weaken against the Euro and other major currencies before changing our view of international markets.
· We expect the monetary stimulus and overall response from the Chinese gov’t and central bank to intensify, enough to convince some investors to come back to the forgotten asset class.
· It’s quite possible that the most important information we get over the coming month (going into the new year) will be information, or lack thereof, from the Federal Reserve. We will get an FOMC meeting on December 12-13.
· While rate increases are not expected, the Fedspeak from Powell will be the thing that really moves the market.
· In particular, Powell’s views on broad “financial conditions” easing in November, will tell us a lot about the future path of interest rates. In the past, he has pushed back against broad market advances. However, with inflation now much lower than it has been in the past. Will this be enough to change his tone? We remain skeptical.
· Our data analysis has shown that stocks can rise even during a Fed hiking cycle.
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