ND&S Weekly Commentary 1.2.24 – Markets End the Year with an Uptick

Nearly all markets finished 2023 with an upward move as a remarkable year was closed out. In a 180-degree pivot, now most investors believe the US economy will avert a recession in this cycle. They are expecting to see inflation amble lower towards the Fed’s 2% target without a major setback in employment levels or GDP. They have made that opinion clear by driving all major securities markets higher in 2023 in a full reversal of direction and momentum from 2022.

For the week, the DJIA gained 0.81% while the S&P 500 added 0.34%. The tech-heavy Nasdaq was up 0.14%. International markets also finished higher. For the week, the MSCI EAFE Index (developed countries) rose 1.17% and emerging market equities (MSCI EM) gained 3.25%. Small company stocks, represented by the Russell 2000, faltered slightly by shaving 0.28% for the week. Fixed income, represented by the Bloomberg Aggregate, rose 0.48% for the week as yields continued to stabilize after a major decline from October peaks. As a result, the 10 YR US Treasury closed at a yield of 3.88% (down ~ 2 bps from the previous week’s closing yield of ~3.90%). Gold prices rose just a little to $2,062/oz – up 0.14%. Oil prices were down and closed at $71.65 per barrel – a 2.6% decline.

Last week’s major economic news was light during the shortened Christmas holiday week. Initial jobless claims were about on target at 218k vs the 215k forecast and the Case-Schiller home price index measured a YoY increase of 4.9% in major metropolitan areas using a 20-city average. A dearth of supply is cited as the major reason. While higher mortgage rates curb demand, supply is also affected because potential sellers do not want to part with their low-rate mortgage debt.

The economic data this week includes numerous employment measures, PMI and ISM data, and the Fed’s FOMC Meeting Minutes. Expect the market to be a bit more measured in its enthusiasm for positive indicators and, perhaps, more attentive to any negatives. Markets moved so much higher and so quickly last year that investors may be more cynical in the beginning of this new year and more willing to trim back some profits.

Professor Jeremy Siegal observed that the prices of growth stocks in the Russel 1000 have an average multiple of ~30x earnings and the value stocks are at 15x. While not the largest spread of all time, it approaches the levels seen in 2000 when the dotcom bubble was just finishing its expansion. The current AI frenzy may well be different, but the similarities are striking.

We are implementing asset allocation strategies that are geared for long-term investment and we favor a near-term defensive bias. We favor higher cash levels, we are gradually extending fixed income duration, and are tilted towards a defensive equity exposure. We hope you had an enjoyable holiday season and are excited to have a great 2024!

“Success is not final, failure is not fatal: it is the courage to continue that counts.”Winston Churchill