December's Market Review
Falling interest rates helped spark a remarkable year-end rally, which shifted into overdrive in December when the Federal Reserve opened the door to U.S. interest rate cuts in 2024 after a rate hike campaign that helped bring inflation down toward the central bank's 2% annual target.
The S&P 500 index has increased for the last nine weeks—the best streak since 2004. More discussion on this streak is below. With the index currently at 4,769.83, there is a short number of points to reach a new all-time high by surpassing 4,796.56 that occurred on January 3rd, 2022. The Dow index has fully recovered from September 30th, 2022, when the DOW was 28,725.51. Currently, the DOW is 37,689.54. For December, the S&P 500 increased 4.4%, the DOW increased 4.8%, and the Nasdaq increased 5.5%. (1)
As I said in last month's review, with November and December providing great returns, remember investing is a long-term undertaking, not a short-term one.
December Portfolio Changes
While we considered several changes, as discussed in last month's review, we made no changes. Our analysis during the month did not provide enough evidence to make changes.
January Market Review
Since World War II, if the market is up in January, it has continued to rise in the remaining 11 months of the year more than 85% of the time, and the average gain is about 11.5%. (2) There are many discussions about whether the January effect is accurate. Its causes are possibly tax planning and employee bonuses. Other months have a higher correlation with the return outcome. I pass on these correlations. The month following a nine-week winning streak averages a 0.66% return. It's a pretty low number to predict the year. See below for more of our thoughts on 2024.
January Portfolio Possibles
We are still considering adding EWW - iShares MISCI Mexico ETF. It depends on whether our analysis supports the change.
2023 Review
Strategists predicted, on average, that the S&P 500 would end 2023 at 4,078, a gain of 6.2 percent from where it started, according to data from Bloomberg. We now know they were way off. The S&P 500 increased 24.23% for 2023. (3) Most analysts had the 2023 projection wrong. Should we, or you, listen to them?
The first chart below shows the S&P 500 for 2023, annotated with various Wall Street Journal headlines from throughout the year. Looking back on 2023, it was an eventful year in the intertwined world of markets, the economy, and geopolitics marked by stress in the banking sector, monetary policy adopting to changes in inflation, A.I., labor strikes, and the war in Israel.
Investors went into 2023 worried about inflation and expecting a recession by the second half of the year.
Instead, inflation has cooled, and the economy remained solid despite the first-quarter regional banking crisis, which sparked fears of a credit crunch. While the Fed raised interest rates four times over the year, at their December meeting, they signaled that no additional increases are expected and will likely lower rates in the coming year.
2024 Look Forward
Back to the strategists - one large brokerage house predicts a 12% decline in the S&P 500 by the end of 2024, while another predicts a 6.7% gain. One or both firms will be wrong. The median estimate from market professionals is for a 6.0% gain in the blue-chip U.S. equity benchmark for 2024. (4) Very similar to last year's predictions. I prefer to look at the history of market movement. Market history does not guarantee next year's results, just its history and my preference.
While we don't have a crystal ball, looking into 2024, you can bet that politics will start dominating headlines, seeing as the November 2024 Presidential Election is rapidly approaching. That may cause jitters for some, but we would highlight that during Biden's presidency, the S&P 500 tracked the typical pattern of election cycles reasonably well. On an additional optimistic note, year four has historically been the second-best of the four-year presidential cycle for the S&P.
Assuming the S&P 500 continues to track the typical election cycle pattern, that would help to extend a growing bull market that, relative to other bull markets, is currently of shorter length (early stages?) than those of the past.
Of course, plenty of factors affect the health of the current bull run. We will watch and discuss these factors as necessary in 2024.
(5) Chart by Bespoke
Schorn Wealth and Fiduciary Planning, LLC, believes all information in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This report is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, the past performance of any investment is not a guarantee of future results. Schorn Wealth's and Fiduciary Planning, LLC's representatives or clients may have positions in securities discussed or mentioned in its published content.