2023 was the year of the Magnificent 7. Not sure if “7” should be spelled out “Seven” or left in numeral form, but regardless, the Magnificent Seven (7) are made of the top seven companies in the stock market including, in order of market cap: Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Meta Platforms (Facebook), and Tesla.
These top 7 stocks make up almost 30% of the S&P 500 Index and achieved annual returns of nearly 90% last year as compared to the return in the S&P Index of 24.2%. Meanwhile, the equal-weighted S&P index (RSP ticker) experienced only 14.1% return (equal amounts into each of the 500 stocks instead of allocating by market cap).
Most stock pickers trailed the S&P in 2023 unless their portfolio was overweighted in the already overweighted Mag 7. For 2024, will the small and mid-cap companies outperform the Mag7 or do the Mag7 continue to dominate?
Portfolio Performance Table & Discussion
The S&P 500 Index moved forward +4.4% in December and +24.2% for 2023, ending the year at 4,770, or less than 1.0% away from all-time highs at 4,817 (on 1/4/22). The NASDAQ outperformed the S&P 500 Index by nearly 20 points in the year as it accelerated +43.4% in 2023 and up +5.5% in final month.
The small cap stocks, represented by the Russell 2000 and the IWM ETF, trailed all year long, but had a very strong December moving up more than double the other indexes. In fact, over three-quarters of the whole year’s return of +15.1% happened in the last month of the year, up +11.7%. This could be a precursor of what is to come in 2024, especially since it feels like everyone believes the small-caps will outperform, therefore dumping boat loads of investment money into these stocks.
Clean energy stocks had a very difficult year. The clean energy ETF portfolio (made up of seven different clean energy ETFs) was down -12% during the year. The riskier small clean energy stocks, represented by those coming public through SPACs, were down -22% to -28%, with the “top picks” down even more at -49%. Not much of a top pick as we had a bankruptcy and going concern warning.
2023 Journey
A year ago in my 2023 predictions edition, I laid out a scenario where we would hit a pretty aggressive high by summer and then trail off the remainder of the year. My prediction trajectory went fairly close to actuals through the end of October, but then a huge divergence (luckily!) developed between reality and that prediction. I had predicted losing the gains and having a red year by the end. However, the market decided to rocket up and, instead, approach new all-time highs in the S&P 500 by 12/31/23.
The SPX chart below shows the price action from the October 2022 low through the end of 2023 with the light aqua line being my 2023 prediction (link: published on 12/30/22).
I’m actually fairly bullish for 2024 and believe we will put together another green (positive returns) year. The chart below shows the historical S&P 500 total returns by year going back to 1926 to give some perspective to ‘red’ versus ‘green’ (or blue in the chart) performance by year.
The average annual return since the beginning of this chart is approximately 10%. Since the market closed at 4,770, a 10% increase next year would bring us to almost 5,250. Funny how all the experts are forecasting 5,100 or lower with 4 of the 12 forecasts being below the end of 2023 close (calling for a red/negative year).
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)
Green Edge (D.T.) => 5,800, +21.6% (predictions newsletter out later in January)
Clean Energy Commentary
This past year has been a record-shattering year for U.S. solar power with an estimated 33 gigawatts of solar capacity installed across the country. That’s a significant increase from the 21 gigawatts installed in 2022. However, this has not made its way into stock prices.
The largest solar ETF, TAN, was down a whopping -26.9% in 2023 and that is after gaining +27% in November and December (was down -42% at end of October). Solar stocks were hammered during the year as high interest rates deterred residential installations and California changed its policy on how much it paid for excess solar generation. In the Q3 reports, companies like Enphase and Solar Edge surprisingly guided for Q4 revenue at roughly half of what was expected. Stock price is about expectations and having the company meet or exceed those growth expectations.
We have already mentioned the headwinds for the small clean energy companies and their horrid 2023 performance. The PBW ETF holds many of these companies and was down -22.5% for the year, even after gaining 18.9% in November and December.
This could be setting up for a good year to search for opportunities in the clean energy sector. Enphase and Solar Edge finished the year down 50% and 66%, respectively. First Solar, who focuses on utility scale solar, was actually up 16% in 2023, but is 25% lower than its all-time high that it hit in May 2023. Other companies to consider in the solar space is Array Technologies (ARRY), Shoals Technologies (SHLS), and Nextracker (NXT). In addition to FSLR, ENPH, SEDG, SHLS, ARRY, and NXT, other favorites which can be found in the PBW ETF holdings include MP Materials (MP), Enovix (ENVX), STEM (STEM), EOS Energy (EOSE), and Navitas Semiconductor (NVTS).
Cryptocurrency Commentary
December was another double-digit positive month for the crypto market. The bellwethers, Bitcoin and Ethereum, gained +12.1% and +11.1% in the month and had annual returns of +155.6% and +90.6%, respectively. The basket of cryptocurrencies in our whole Portfolio was up huge in December +23.9% and almost as much as Bitcoin for the year at +150.7%. The big winner was Solana (SOL) which started the year at $9.97 and ramped up to $101.69 per coin by 12/31, gaining 920%.
As Bitcoin approaches its “halving” in late April of 2024, it has historically been a good time to own crypto. The halving happens approximately every four years (link). In the past two halvings in 2016 and 2020, Bitcoin gained 125% and 301% but also continued to appreciate the following year by 1,331% and 90%, respectively.
Happy New Year to all of you. As a recent fortune cookie said, “Enthusiasm is contagious. Not having enthusiasm is also contagious.” I choose the former. Let’s Go in 2024!
Efficiently Yours,
D.T.