I See Big Tailwinds for Stocks in 2024

Editor’s note: The markets and our Chaikin Analytics offices will be closed Monday, January 15, for Martin Luther King Jr. Day. As a result, we won’t publish our Chaikin PowerFeed e-letter that day. Look for your next issue on Tuesday, January 16.

We’re once again on the verge of a new all-time high… and beyond.

The S&P 500 Index made a new 52-week high in late December. It closed yesterday at roughly 4,780. It’s now sitting about 0.4% away from its all-time high at around 4,800.

So in short, the bull market is alive and well.

Even better, as I’ll explain today, it has significant tailwinds heading into 2024…

Two major shifts are likely to happen this year.

Thanks to lower interest rates and a resilient domestic economy, we’ll likely see a resurgence in small-cap stocks. And I also expect the strength of the S&P 500 to broaden out into the other 493 stocks beyond the so-called “Magnificent Seven” tech mega caps.

That doesn’t mean tech stocks will suffer, though. I still expect big things from this space as demand for artificial-intelligence chips and software keeps growing…

Based on the Technology Select Sector SPDR Fund (XLK), tech stocks surged more than 50% in 2023. It was a massive climb.

Since 1990, this sector has surged more than 40% in a single year seven times. According to data from Bespoke Investment Group, tech stocks continued to rally the following year in six of those seven instances. And they produced an average gain of nearly 22%.

That points to even more possible upside ahead for tech stocks.

Another potential driver for stocks in general is that 2024 is a presidential-election year…

Going back to the late 1800s, that’s “bullish” for the stock market.

The stock market has only lost 5% or more in six out of 32 presidential-election years since 1896. And in five of those elections, the party in power lost.

Since 1950, the S&P 500 has rallied in 14 of 18 presidential-election years.

The strength was concentrated in the back half of the year, too. The index was up from the end of June through year-end in 16 of those 18 years – with an average gain of 10% over that six-month period.

Why is the market so strong in presidential-election years?

Well, it comes back to the power of the president to pump up the economy and make voters feel good in November. And 2024 shouldn’t disappoint on that front…

Interest rates and inflation are still down significantly from their highs. Meanwhile, wages are still on the rise. And consumer sentiment is already on the upswing.

The Federal Reserve will likely cut the benchmark federal-funds rate three or four times in 2024.

And a less visible but equally as important factor is the end of the Fed’s quantitative-tightening (“QT”) efforts – those policies designed to reduce its balance sheet. The December meeting minutes showed that the Fed talked about it for the first time.

Meanwhile, according to the December Consumer Price Index (“CPI”), prices ticked up 3.4% over the prior year. That’s a slight increase from the 3.1% increase in November.

On the other hand, core inflation – which removes the volatile food and energy categories – fell slightly to an annual rate of 3.9% from 4.0% the month prior.

Earnings are on the upswing as well. The Atlanta Fed estimates that fourth-quarter gross domestic product will be up 2.2%. And it expects further gains in the first half of 2024.

That’s all great news for investors, of course. Falling inflation overall, declining interest rates, and rising earnings mix together to produce a positive outlook for stocks.

So for now, my point is simple…

I’m as “bullish” as ever on stocks in 2024.

Good investing,

Marc Chaikin

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