What a fascinating year 2023 turned out to be.
Talk about unpredictable! That’s the way it always goes in the market. You never get what you think.
This is why the investment writer Ken Fisher calls the stock market ‘TGH’ — The Great Humiliator.
It’s my turn to stick my neck out…and run the risk of humiliation…with some predictions for 2024.
Before I do…
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So, what’s in the store in the year ahead? And where might some of the best upside lie?
Well, let’s start by frankly addressing how my 2023 predictions turned out.
The market year is a long one, so I won’t go into everything.
Generally speaking, I think I did ok to stay positive on the stock market in general, and not to expect too much from the mining sector, and oil especially.
The one thing that didn’t work out as planned for me was how difficult the Aussie market was for most of the year (December has been much more fun!).
Go back to the US banking ‘crisis’ in March.
Here’s what I wrote to my subscribers at the time….
‘I lean to think the next few years could look like the boom years of the late 90s.
‘Back then, the internet was the hot new thing that sent US productivity soaring.
‘It seems to me we could be up for the same thing as artificial intelligence finds more and more commercial application.
‘Take that with a grain of salt. It’s speculation on my part…but no great stretch to imagine either.
‘Another thing…
‘It’s called politics. Historically, the third year of a presidential term is the most bullish for markets.
‘It’s no secret that politicians like to indulge in a bit of pump priming to help boost their election chances.
‘I’d expect Joe Biden’s Democrats to do the same. Biden has already called for a record level of defence spending.
‘Forecasting markets is a tough game. So much can change…as we’ve just seen in the last week or two.
‘However, as far as I’m concerned, dips are still opportunities to buy if you’re in for the long term.’
Not bad, I’m sure you agree. The mistake I personally made was not to buy US AI stocks!
I decided Aussie stocks were within my ‘circle of competence’. They are…but they were flat for most of 2023!
It’s only now they’re beginning to rev. Better late than never!
And there’s always 2024…
What could happen next year?
Here’s my best guess!
#1 The Presidential Cycle Stays True
One cycle to follow is the US Presidential cycle. Historically, the second two years of a presidency are positive. This is the last year of Biden’s term.
I expect US stocks to stay positive, generally. But it could be a wild wide!
We have the potential for a Trump comeback. That could throw the market in all sorts of directions as investors handicap who is more likely to win…and what it might mean.
Trump could ‘bribe’ his way into office with tax cut promises to the American working class.
Overall, there’s enough momentum in the US economy to keep the stock market happy — I think!
#2 The Fed cuts earlier than the market thinks
We threw this idea around the office the other day. The Fed may already be stuck in yesterday’s war. The problem in 2024 may be deflation…not inflation. Don’t laugh. It’s already a problem in China!
#3 The yield curve goes positive
You might have heard in 2022 how the ‘inverted’ yield curve portended a US recession in 2023.
It didn’t happen in the end (the recession). However, the yield curve is still inverted. The banking system doesn’t like that. I believe the yield curve could go positive in 2024…and financial stocks could catch a tailwind. This should also sustain economic growth.
#4 Aussie stocks hit all time highs
I’ve urged you to stay positive in 2023. The Aussie market struggled to kick in like the big US stocks.
However, I think it’s clear they’re starting to break their shackles now.
Interest rate certainty and falling inflation will give investors confidence…and China stimulation should lift mining investment and earnings.
#5 Small Caps and REITs go from underperformers to overperformers
Two sectors clobbered in the last two years are small caps and REITs.
They are so smashed that I see lots of potential upside in 2024 and 2025. That’s the way of markets. They’re cyclical…and investors aren’t blind to the potential value here. Make sure you’re following the opportunities here.
#6 Bitcoin and gold attack all time highs
There’s enough monetary juice pumping out into the markets to keep pumping these two. Bitcoin is running up into a potential ETF and the halvening next year.
There’s no asset that can pump like BTC, and the rise should keep drawing in more the higher it goes. Gold could follow in its wake, though with less spectacular gains.
#7 Momentum comes back as the best trading strategy
Momentum trading has been a tough game since late 2021. Stocks fell in 2022. And in 2023 they went sideways. That made momentum VERY hard to find.
As confidence returns, stocks should start trending up again. I expect more ‘alpha’ potential on the ASX than we’ve seen in two years. Bring it on!
There you go! That’s my best crack at what happens next year.
Join Australian Small-Cap Investigator, and I’ll aim to help you find some of the best small-cap stocks to play through it.
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I can’t wait to find out.
Best wishes,
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Callum Newman,
Editor, Australian Small-Cap Investigator and Small-Cap Systems
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