Stocks pushed higher Friday, with the S&P 500 and Dow Jones indexes recording their highest levels in more than a year, after Federal Reserve Chair Jerome Powell supported the market consensus view that key interest rates have peaked. The three major stock market indexes ended the week higher for the fifth straight week, with the Dow rallying 2.4%, the S&P rising 0.7% and the Nasdaq Composite climbing 0.4%.

While tech stocks have been the bright spot all year, with interest rates set to drop in 2024, other sectors that have been beaten down this year – Real Estate, Healthcare, Consumer Discretionary, Financials to name a few are beginning to get some attention again.

But, for all the bullish milestones notched by November’s stock market surge, recent history offers Wall Street a lesson in caution. Time and again, speculation breaks out that the Fed is poised to ease monetary policy too soon — spurring even cautious investors to erupt in a spasm of stock buying only to regret their decision in due course.

What awaits us in December and, more importantly, in 2024?

Future Wealth’s View

US consumer spending, inflation and the labor market have all cooled in recent weeks, adding to evidence that the economy is slowing—seemingly matching the Federal Reserve’s preferred glide path toward a soft landing. The stock market is expecting a soft landing, double-digit earnings growth, and around 100 bps of rate cuts in 2024.

Economic data is positive – yields may have finally topped and ‘higher for longer’ rates are no longer a threat. Inflation looks set to fall to the Fed’s 2% target sometime in Q2 2024  which will mean rate cuts may come soon after if the economy slows down meaningfully. With the risk of recession still looking low, particularly with unemployment at 3.9%, we may be in for a period of continued bullishness in the stock market going into 2024.

Of course, with the S&P 500 returning 20% year to date, it has only served to regain some of the 20% decline in 2022. Which means for investors, their portfolio is barely back to the same level as January 1st 2022 (20 percent decline requires 25 percent gain to breakeven). There is likely a plethora of investors who pulled out of the market by the end of 2022 and put their money market funds only to see the stock market surging again this year with envy.

For all the other investors, with most of the gains this year from the Magnificent Seven (Apple, Microsoft, Google, Nvidia, Tesla, Amazon and Meta) Tech stocks, the real work to identify sectors and companies to invest in 2024 begins now. It would be wise for all of us to remember Charlie Munger, who passed away at 99 years earlier this week, and reshaped Berkshire Hathaway with one quote – “Do not buy fair companies at wonderful prices, but buy wonderful companies at fair prices”. 

We all have a lot of research and reading to do over the holidays.