December marked a positive turn for the markets, building on the robust performance witnessed in November. During December, the Nasdaq surged by 4.94%, the Dow Jones achieved a 4.84% increase, reaching new highs, the S&P posted a 4.42% gain, and the TSX saw a 3.20% uptick for the month.
It’s important to note that indexes are not synonymous with the entire market. Merely examining index performance does not offer a comprehensive view of the overall market. For instance, the so-called Magnificent 7 stocks, constituting about 33% of the S&P 500’s weighting and 50% of the Nasdaq, heavily influence these indexes. In 2023, excluding the returns from these seven stocks significantly alters the picture. Without the Magnificent 7 stocks, the S&P 500’s return drops from 23.80% to approximately 7.50%, and the Nasdaq’s 2023 return becomes nearly flat.
Considering this disproportionate impact is crucial when assessing index returns, as they may not accurately mirror the underlying market’s performance each year.
Upon evaluating the events of 2023, we find that our investment thesis, crafted at the onset of the year and echoed in our market commentaries, foresaw a favorable market trajectory after October 2023, barring any unexpected abnormal market occurrences. Our foresight proved accurate, with the markets reversing course in early November and maintaining momentum throughout December to conclude the year on a positive note. Furthermore, it is heartening to observe an enhancement in market breadth, with a growing number of stocks joining the rally beyond the influence of the Magnificent 7 stocks.
Our main thesis for 2024 revolves around the belief that we are witnessing the end of a 30-month bear market and are in the initial phases of a burgeoning bull market that will surpass expectations in 2024. We anticipate encountering discouraging economic news in the first half of the year, concurrently with market upswings, which may perplex some observers. It’s crucial to recognize that the market serves as a leading indicator, and our forecast suggests that the US economy will outperform expectations in 2024. The ensuing outline highlights the key points we anticipate for the year 2024.
• We project that interest rates will remain steady throughout 2024, with the potential for slight declines later in the year, unless substantial economic disruptions occur, we do not foresee a recession in the US. Given that interest rates are currently in line with historical norms, we anticipate the economy to sustain its resilience as households and businesses adjust to the new normal of elevated interest rates. A return to an ultra-low interest rate environment is not anticipated in the foreseeable future.
• The 10-year US Treasury yield, averaging around 4.5% historically is currently around 4%, coming off the highs of 5% a few months ago. We anticipate that the 10-year yield will remain between 4% to 5% in 2024 and surprisingly this will not have the negative impact on the market that would be anticipated.
• Inflation will remain in the 2.5% to 3.5% range.
• The US housing market will surprise to the upside.
• The new bull market will result in a further broadening out in and US small and mid-cap stocks will perform well in 2024 with the Russell 2000 reaching new highs.
• The Nasdaq, DJIA and S&P 500 will reach new highs in 2024 with double digit gains for the year.
• The Canadian economy and stock market will have a much more muted performance and we are not as positive on the housing market in Canada or the general economy.
• In the upcoming years, the trend of US outperformance compared to Canada is expected to intensify, driven by influential factors such as the reshoring of high-end manufacturing and the rapid advancements in AI, bio-tech, blockchain, robotics, and other domains. Canada’s relative lack of innovation and persistent structural challenges, including a scarcity of competition, will likely exert a negative influence on its economy. There is an absence of a dynamic plan from the political leadership to propel the country forward. The main economic plan is to continue increasing immigration to generate economic activity, which further adds to the challenges faced by the country.
In 2024, we are filled with enthusiasm, and our analysis indicates that we are currently at the beginning of a new bull market. This comes on the heels of enduring one of the most challenging bear markets in recent memory.
