Crystal Ball Stock Projections for 2024

December 2023 Newsletter

Although the year is not over, with less than a couple of weeks left, its likely that 2023 will end up a very strong year.  As of this writing the SP500 has achieved about 23% return which in fact is a typical bull market return. The Canadian TSX on the other hand did not have one of its better years, but at least its now in positive territory. My hobby portfolio which is the basis for this newsletter will likely be just shy of the SP500 return. I will tally up the official results in next January’s Newsletter. 

What Are My Predictions on 2024?

Lets first look back a little to see where we came from which may help us predict the future.

If you recall, late last year (2022) I had projected that the market was going to run up and that 2023 was going to be a strong year. I do like it when I am right.  To be honest, I am simply playing probabilities, no magic here.  Getting back to back bear markets (a bear market is a negative return of 20% or more) is extremely rare.  So betting against one was simply taking advantage of the past market behaviour. 

In fact, most people had the opposite view at that time, even high paid analysts were all projecting negative or no returns for 2023. Generally, the herd of analyst almost always gets this wrong. They tend to bunch together because there is safety in numbers. No one wants to go on a limb because outliers of the herd get fired.  Since this is a hobby and not a job for me, I cannot get fired so I can actually tell you what I think.

Knowing that 2023 was likely going to be a good year meant that I could actually create a strategy where I could 1) leverage the account slightly (loan against my margin) and 2) load up on a big losing sector (communications).  Big losers in a bear market always bounce back the most. This is a simple approach that almost always works.

My bear market strategy was the right one.  The Communications sector over performed in 2023, and the market was up strong.  But even getting this macro view right did not provide the big market beating results I was expecting.

So What went wrong?

A large chunk of the SP500 gains came from just a few (7) companies, aka Magnificent Seven, concentrated in just 3 sectors.  Further, Canadian and international stocks under performed the SP500.  This meant that my very diversified portfolio was at a big disadvantage by being under weight US stocks. Luckily the portfolio has still done relatively well.  Almost everyone I know (except one, you know who you are) underperformed, mostly for the same reason.

This is a good example of how the market can still embarrass you even when you have a winning strategy.  I still got a market like return which in a sense is kind of the main goal. Ultimately its not the end of the world and I should be happy with this return.

Back to the 2024 Predictions

Lets start with what everyone else is saying now. Most analyst are predicting a 10% return, remember they got 2023 really wrong. A 10% return as I have said in the past is extremely rare.  Its roughly the long term average return of most equity markets.  They may as well be saying : “I have no clue, d’ont fire me”.

What do I think about 2024?  First off, projecting what the Stock Market is going to do is super difficult. For the most part no one really knows for sure, otherwise if you did, you would eventually own the planet. Generally, predictions are really more for fun but sometimes can still provide some basis for some light strategies.  

I realize that returns will depend on things like  wether we get a recession or not, earnings, interest rates.  In addition, I also am a believer in the US presidential cycle which indicates that year 4 of the cycle is generally positive for the market. Then there is the Inverted yield curve which is strongly suggesting a recession.  Last but not least, most people are not aware that the market is up way more often than it is down. So simple probability favours a positive outcome in the 70% range.

 As you can see there are many forces acting on the market in both directions like a tug of war.  There are also forces that could show up that we do not know like space aliens, nuclear war, global freezing. This is why, generally, its more of a game and any predictions should be taken with a grain of salt.

That all said, my guess, is that 2024 will likely end up pretty good but volatility will be again a factor.  I predict mid teens with lots of volatility.  I feel that the market is too pessimistic and that will surprisingly drive the market higher at least for the beginning of 2024.

Strategy for 2024

I still expect some rotation in what will lead the market.  The magnificent 7 can not lead forever.  It is very difficult to time these things, so the best strategy is to not abandon those 7 stocks, but also not rely on them.  I always want a bit of everything as to have some winning players in the portfolio at any one time. As I said above, “stupid” can stay in the market for a long time.

Tactical Changes

I will likely undue last year’s strategy, firstly by getting rid of my 3% leverage (small) and by selling off my VOX ETF to bring down my Communications sector to underweight from overweight.

I have already reduced my USA exposure which has worked against me in recent performance but I gained in knowing that my risk level is lower than that of the market.  This approach will continue in 2024.

I suspect financials will start to run up as they tend to do well in higher rate environments.  That also means that the Canadian market may have a stronger return than the US considering that its overweight financials.  I will also look at the bottom performing sectors as they are the most unloved and have a greater potential for a rebound.  Utilities, Energy, Consumer Staples and Health Care were all negative this year.  I have already added my first Utility to the portfolio (see my October Newsletter).  I will likely add to this position and consider adding some weight to the other loser sectors.

Its tricky trying to guess which part of the market will do well next year.  Not only do you have allot of losers and under performers to choose from ie foreign, Canadian Market, Emerging Markets, small caps, mid caps, Value Stocks, most sectors that are not Information Technology or Communications, most stocks in general that are not the Magnificent 7 in the sp500.  

At the very least if there is no rotation next year and your well diversified, you will likely again under perform a bit, but at least your risk/reward profile will be much safer by far.  

What about ETFs?

Another good year for ETFs.  If you follow this blog, you know there is a reoccurring theme here.  I normally suggest that small investors have 3 different market ETFs, one for your own country, a US ETF and an international ETF (less USA).  This would be the smart way to approach it.  Depending on how you combine these, you likely returned somewhere around 13-15% with lots of safety and without raising a finger. You likely have done better than most small investors. If you are american and you have almost all your investments in US companies as most do, then you really hit it out of the park (this time).  If you are 100% Canadian invested, you likely do not follow this Newsletter and your kicking yourself with despair…again…sorry. If you are a worldly type and do not care to be biased to your country then you could be holding an all in one world ETF like Vanguard’s VT  or Black Rock’s URTH which returned 18% and 20% respectively.

Marc’s Mistakes:  

I try not to have too many mistakes and when I do, I have to make these public to temper my ego. So here it is: I noticed recently that my Communications ETF VOX was underperforming the benchmark. Weird? It is providing an almost 40% return, but the benchmark is almost at 50%.  When originally searching for an ETF product I did notice that VOX ETF had a bit more tracking error as it was not entirely exactly the same as the benchmark. Its lower fees drew me into accepting a good enough situation.  On a big run however, the error played against me. Every dollar counts when measuring performance and I feel that I left some behind with this pick. I will be more careful next time.

Marc’s Monthly Moves

• Sorry no Moves

Marc’s Portfolio YTD Performance

• Portfolio return: 18.9% (including currency losses)
• Portfolio return: 20.1% (without currency losses)
• S&P 500 return: 22.9%
• RSP ETF S&P equal weight 10.7%
• TSX: 5.9%

The portfolio underperformed its benchmark by 2.8 points.

Note that the RSP ETF has increased 7 % in a month outpacing its weighted SP500 sibling.  Meaning that the overall market not just the Magnificent 7 is participating in the move up. This is a good sign.