It is that time of the year again, PREDICTIONS. This will be my third year in a row of making predictions for the New Year. Not I’ve been particularly great at predicting, but I sure have fun peering into the crystal ball, reading the tarot cards, and make stuff up for this fun edition.
Since Green Edge is about investments and the stock market, the biggest prediction is what will happen with stock prices during this year. Up, down, sideways? We can expect to experience a whole lot of all three of those directions in 2024 but I’ll give my best guess for how it will play out.
In 2023, I was pretty close on the trajectory of the S&P 500 index until the end of October. Back in December of 2022, I just felt like there was too much potential bad news that the market would falter in the second half of the year and end in the red. However, to the surprise of many, the market rocketed up in the last two months of the year to finish strong at +18%.
I was more than happy to be wrong. 2024 is a leap year, meaning we have an extra day to enjoy this year. So let’s forge ahead and ‘see’ in what’s coming for 2024.
Factors of Influence
Election. The Presidential Election will happen in November of 2024, although it will be a circus all year long. History tells us that election years have been good for the stock market as it has increased 20 of the last 24 elections (an 83% hit rate back to 1928). When the market ended in the green on election years, the average increase was 17%. Conversely, in the four times the market was down, the average decrease was 16%. Below is a chart of results since Reagan beat Carter in 1980.
Prediction #1:
Even though Biden and Trump are currently leading by large percentages in the polls, there will not be a rematch in November. One will not be on the final ballot. Here is the real kicker for this prediction, whomever of the two that does make it to the ballot will NOT win.
Inflation and The Fed. As the world was coming out of the COVID situation, supply chains were hampered, people had money, and prices escalated quickly => high inflation rates. Inflation peaked in June of 2022 at 9.1% and have since come down to 3.1% in November of 2023. The Fed’s job is to keep inflation rate steady at 2%. To combat the higher prices, the Fed raised interest rates eleven (11) times over an 18-month period from <1% to 5.5%. Below are five-year charts on the Fed Funds rate and Core Inflation rate from 2019 to end of 2023.
The question for 2024 is multidimensional. Has the Fed successfully tamed inflation with the current reading at 3.1% and trending downward? Since interest rate adjustments take a full 12-18 months to be felt in the economy, have they done enough, or too much, where it continues down to the target of 2% or below. And if/when they get to 2%, can they do it without throwing the economy into a recession and increasing unemployment rates?
Last year, I predicted five more increases in the Fed Funds rate, we got four. Inflation rate moved down more swiftly than I expected, 3.1% versus my 4.7% guess. I also felt that unemployment rate would sneak up more than it did with the higher interest rates, but the U.S. Economy has proven to be very strong.
Predictions #2-4.
The market is currently expecting six rate cuts in 2024, whereas I am projecting four 0.25% decreases down to 4.5% - still pretty high compares to where we were pre-2020, but Fed Chair Powell will error on the side of caution because he does not want inflation to creep back up. I do believe the inflation rate will get to the 2% target. There is a real possibility that the Fed overshoots and we actually go to zero, but not likely in 2024 with the strong economy. Unemployment creeps up slightly to 4%.
Experts. In my December 2023 final results edition, I mentioned that the banks and wealth management companies come out with their expectations for 2024 and provide an end of the year projection for the S&P 500 Index (see below):
Expert picks for 2024 S&P 500 Index:
5,100 by BMO, Goldman Sachs, Deutsche, and Citi
5,000 by Bank of America and RBC
4,875 and 4,800 by UBS and Barclays, respectively
Lower than current 4,770 by Wells Fargo (4,625), Scotiabank (4,600), Morgan Stanley (4,500) and JP Morgan (4,200)
The highest projection at 5,100 provides for only a 6.9% increase for 2024, much lower than this year’s 24.2%. And four of the twelve organizations are projecting a negative year for the index with the lowest prediction coming from JP Morgan with the SPX to end the year at 4,200, or down 11.9%.
Let’s get into the discussion on stock market (potential) journey for 2024.
2023 Stock Market
Let’s lay out two opposing, and extreme views before getting to my projection as reality will be somewhere in between the extremes. First, let’s look at what the '“Doomers” are thinking then we will turn to the “Degens”.
Doomer outlook: All is bad. The world is ending. Stocks will go down with the ship. Below is how one might use the charts to show the S&P 500 demise. It shows a double-top with the first peak happening in January of 2022 and second in December of 2023. Inflation will come roaring back, interest rates will skyrocket, and a deep recession will occur. In 2024, the S&P 500 will revert back to where it came from during the COVID low in March of 2020 at about 2,200. Down more than 50%. Sorry to start off by scaring the crap out of you all.
Degen Optimist Outlook: The economy cannot be stopped. Lots of money on the sidelines that will need to get in, especially as interest rates decline and bonds become a less attractive option. The chart starts with the COVID low to the January 2022 as the first wave, 2022 retracement was all a second wave, and now the most powerful, third wave is projected for a 1.618 extension to 7,750. If it hits that by the end of 2024, we are in for a 62% return.
D.T.’s 2024 Prediction. As I finish off this edition of the newsletter during the first week of January, the S&P 500 is experiencing a correction of about 3% which was overdue after seven weeks in a row in the green. In 2023, the market had two nice sized corrections, ~9% in March and then ~10% in August-October. I don’t believe this early January correction will be 10%, but we will have at least one and maybe two 10-percenters again in 2024.
I believe we need to hit 5,000 before the first real correction. Therefore, we hit 5,000-5,050 by end of February and correct for 4-8 weeks back down to 4,500-ish (about 10% down). The talk will be of the Fed not yet acting, the wars continue, retail sales maybe down slightly, but in the big picture, the environment is still strong enough for the market to rebound higher.
Don’t sell in May again this year as we will rocket back past 5,000 towards 5,500 by the end of the summer. The Fed acts and reduces the Fed Funds rate by 0.50% and freaks out the market in the third quarter. CNBC will ask whether we are heading towards a recession. The second correction of the year happens but stays above 5,100. The Fed takes a victory lap, reduces rates again, but only because inflation is “under control” and the markets reacts in a positive manner hitting the next major milestone at 6,000, but the market bounces off that level, closing the year at 5,800 => up more than 1,000 points or 21.6%.
Prediction #5.
The S&P 500 Index (SPX) will finish the year at 5,800, up 21.6%.
Bitcoin & Cryptocurrency
The SEC will rule on whether to allow Bitcoin ETFs or not. In fact, it could happen this week. The likelihood of Bitcoin ETFs being approved has been one of the drivers of cryptocurrency performance in 2023 with BTC rising 156%. If the SEC rules for these new cryptocurrency ETFs, will it be a boost to BTC price or will it be a “sell the news” event?
My thought is that the announcement will create a quick spike up, but since these things take time to produce real live new investments and demand, the price will move lower for a few months. However, Bitcoin ETFs would be very good for long-term investment into Bitcoin and support higher prices.
The other main driver for a positive 2024 for Bitcoin is that the “halving” event which takes place in late April. About every four years, the amount of Bitcoin rewarded to miners is cut in half. This reduces the number of Bitcoin issued each year thus creating a less inflationary asset over time. Bitcoin price rises leading into the halving.
There is limited history to evaluate price action during the halving process but found this chart on ‘X’ which shows 2016 and 2020 activity. There is a pre-halving pump, then a dump and steady for about 200 days, then parabolic rise to new highs.
In our 2024 scenario, the ETF news likely takes us into the $50k’s but short of the all-time high at $69k. Then we will drop back - maybe to mid-$30s - and then start the move to new all-time highs which would max out during 2025. Where does that put us on 12/31/24?
Prediction #6
Bitcoin will close out the year at new all-time highs around $80,000. However, 2025 will also be a good year for BTC as it will continue to $150k or more.
Miscellaneous Topics to Consider
Here are some quick topics to weigh in on.
Will the U.S. avoid a recession again in 2024 or will this be the year of two negative GDP quarters? The economy continues to show strength so I find it unlikely the next recession will happen in 2024.
Will clean energy stocks outpace the S&P 500 in 2024? I’ve been publishing this newsletter for three years and the QCLN clean energy ETF has trailed the S&P in each year. I have conviction in my thesis that the clean energy transition will produce winners through 2030. And in 2024, QCLN will beat the SPX. Let’s get back to 2020 performance! (see below)
Will 2024 be the hottest year on record? Currently, 2023 has that designation and as El Nino continues its path, 2024 will likely be the new hottest year on record.
The biggest thing to hit the National Football League (NFL) in 2023 was the Swifties coming out to follow the Kansas City Chiefs. Will Taylor Switft and Travis Kelce get engaged in 2024? Why not, what’s good for them is good for the NFL.
Last night at the Golden Globes, Oppenheimer won best motion picture of the year. Will Oppenheimer win the Academy award for Best Motion Picture in 2024? I believe it does win and my New Year’s resolution is to set aside a few weeks to actually watch it all.
The Packers squeak their way into the playoffs and once there, anything can happen. Especially this year as no teams have been able to dominant. Will my beloved Green Bay Packers (I’m from GB) make it to the Super Bowl under first-year starting quarterback Jordan Love? What kind of Packer fan would I be if I said “no”. Let’s go Pack!
Want to Play Along?
Here is this year’s scorecard. Print it out and play along. For bonus points, email me your predictions at DTfromGB@gmail.com.
Hope that you and your family had a wonderful holiday season. And that you are off to a great start of the New Year 2024.
Efficiently Yours,
D.T.