CWS Market Review – January 5, 2024
“People always call it luck when you’ve acted more sensibly than they have.” – Anne Tyler
The 2024 trading year is underway. So far, it’s been a slow start, but it comes after an impressive rally to end 2023. Depending on Friday’s trading, the S&P 500 may snap a nine-week winning streak.
The stock market finished 2023 with a gain of just over 24%, but much of that came near the end. As recently as late October, the S&P 500 was up about 7% for the year. Once it became clear that the Fed was done with its rate cuts, stocks rallied.
Last year was an unusual one for Wall Street. Charlie Bilello, one of my favorite stat guys, noted that the S&P 500 beat the equally weighted index by its widest margin since 1998.
Large-cap tech stocks dominated returns. Perhaps the most elucidating stat from last year is that 70% of stocks in the S&P 500 trailed the index. As your stats teacher taught, median and mean are not the same thing, and we certainly saw that last year. This is what happens when a small group of stocks makes outsized gains.
What also stands out is how poorly defensive stocks trailed the market. I’ll have more to say on this in a bit, but these are the stocks that investors like to own because they’re safe and stable. Last year, safe and stable were out of favor.
A good example of this from our Buy List is Hershey. Businesswise, the chocolatier is doing just fine. HSY handily beat its Q3 earnings, but the stock has lagged the market for more than six months. You can’t get much more defensive than chocolate.
As a general rule of thumb, as the economy gets weaker and interest rates fall, defensive sectors tend to lead the market. Perhaps the anti-defensive trend has gone too far, and this could be a good year for those stable sectors.
In this week’s issue, we’ll take a closer look at the market and the economy. The December jobs report comes out later this morning. The last two jobs reports were passable but nothing to celebrate. The consensus on Wall Street is for a gain of 158,000 net new jobs.
On Wednesday, the Federal Reserve released the minutes from its recent December meeting. In it, the FOMC finally acknowledged what the market had been saying for several weeks—that rate hikes are over. However, the Fed provided no timetable on rate cuts. I’ll have more on that in a bit.
I also have some Buy List updates for you. Wall Street is fairly quiet right now, but Q4 earnings season will be starting soon. The unofficial kickoff comes next Friday, January 12, when several of the big banks (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo) will release their Q4 reports. But first, let’s look at an unusual year for Wall Street.