Considered one of my earliest influences within the funding enterprise was Byron Wien, the previous Morgan Stanley and Blackstone strategist, who was energetic within the trade till his passing in October of this 12 months. Mr. Wien was identified throughout Wall Avenue for his annual listing of high surprises. Admittedly, all the things on the listing in all probability had a lower than 50% likelihood of occurring. However at this stage of the market cycle for shares and bonds, has there ever been a greater time to account prematurely for the surprising? So, as each an homage to an investing legend, and to offer a useful “what to be careful for that you could be not anticipate” listing for 2024, right here is my model of the highest 10 surprises I’m for the brand new 12 months.
Surprises versus predictions, and what issues
These are NOT issues I anticipate to occur. That’s why they’re known as “surprises.” However what Byron Wien did so nicely is to grasp what buyers are assuming will doubtless occur. And with social media throughout us, we buyers get so many opinions and so rapidly. So that is about preparedness, not “making calls” on issues, which is approach overrated in investing.
I believe a great way for buyers to begin 2024 is to make a decision: to give attention to what issues. An excessive amount of consideration is given to “that particular person stated this is able to occur, and it didn’t.” Fashionable markets will not be like they was. We don’t must throw out the previous guidelines, however we do should be ready for something. I name it being “versatile and adaptive.” It isn’t a method to make 50% in a 12 months just like the one which simply ended, nevertheless it goes a great distance towards assembly my first funding goal for myself: ABL – keep away from large loss.
I answered a number of hundred questions and feedback final 12 months, and I discover that some buyers could also be placing an excessive amount of emphasis on who stated what and when, and specializing in a really restricted a part of the worldwide funding panorama. Markets are a lot extra fluid than they had been up to now. So, for instance, predictions about what the S&P 500 will do for the whole thing of 2024 means nothing until you make investments 12 months to 12 months.
I’m a 59 12 months previous semi-retired man who has invested professionally for 30 years. I simply can’t get sufficient of following markets, actively investing for my circle of relatives, mentoring others and sharing my what I’ve realized from 37 years of expertise (the successes and oh the numerous failures).
To me, investing is just not about “selecting winners” and forecasting. It’s a couple of cumulative set of selections one makes, that each one goes again to an funding course of. I’ve one, however I don’t anticipate anybody else to repeat it (although they’re welcome to). I simply need of us to take from it what they suppose will help them.
It follows that going into 2024 or another 12 months, crucial factor any investor can do: pay attention to not solely the plain, however not so apparent prospects for what can influence your cash. I preserve a listing I name the Market Outlook Issue Overview (MOFO) which is the place a few of these concepts come from. However I’m writing them right here when it comes to surprises, somewhat than on the MOFO, the place I merely listing the highest 10 components I believe are influencing the markets at present.
With that, and a nod to the late nice Byron Wien, listed below are 10 occasions which are fairly doable in 2024 and would shock buyers. So it’s higher to think about what would occur to your portfolio in the event that they did, somewhat than suppose to your self “that may’t occur.” As a result of that is investing, the place something can occur!
High 10 Surprises for 2024
1. The US inventory market collapses in January
The bulls are assured, the bears are hibernating after a 12 months the place the recession didn’t arrive. As with every of the ten objects on this listing, we’ve to return to an previous Wall Avenue saying (paraphrasing): “the market at all times does what it might probably to frustrate the most individuals.” Wouldn’t it simply be a freakout if the S&P 500, Nasdaq 100 and small cap shares fall straight down throughout January? That is what occurred simply 2 years in the past, when buyers got here into 2022 driving excessive, solely to have the market peak on January 4 of that 12 months. 2 years later, it’s nonetheless beneath that peak, albeit barely. A fade in January can be a harmful “double high” to we technicians.
2. The Magnificent 7 leads spikes increased to begin the 12 months, however immediately rolls over and the Invesco QQQ Belief (QQQ), which tracks the Nasdaq 100 index, ends the 12 months down at the very least 20%.
That is primarily the 12 months 2000 situation yet again. I’ve talked about this in current articles, and I believe it’s really a a lot greater potential threat than many suppose. 2023 and 1999 had quite a bit in widespread, from a sentiment/speculative/purchase each dip standpoint.
3. The US Greenback continues its fade, however then accelerates to the draw back, making non-US shares a “gimme” to beat the S&P 500, for the primary time shortly.
Why may this happen and shock individuals? As a result of buyers have change into so used to the US authorities kicking the can down the highway on spending, if the market lastly begins to care extra about this than it has up to now, it’s going to damage the US Greenback’s worth additional. What’s the “canary in a coal mine” right here? 1-month US Treasury payments ended 2023 at a price of 5.6%. That’s a “inform” to me, and makes this situation worthy of the shock listing.
4. Inflation comes again, and it’s worse than earlier than
The prevailing market opinion is that inflation is within the rear view mirror, and thus long-term rates of interest ought to proceed to plunge in 2024, as they did in late 2023. That’s what they thought within the Nineteen Seventies. Perhaps I’m watching too many last-minute comebacks in sports activities, nevertheless it appears to me that there was a bit an excessive amount of victory dancing, together with by the Fed. And sarcastically, the late-2023 inventory market and bond worth social gathering may renew the previous “animal spirits” environment, the place buyers really feel emboldened. And what may that result in? Increased inflation.
5. The Dow Jones Industrial Common has its highest-ever outperformance of the Nasdaq 100 Index
As I’ve written right here quite a bit just lately, I nonetheless just like the Dow, and suppose it tells us extra about how the “inventory market” is doing than the S&P 500, which at present has its highest holdings overlap with the Nasdaq 100 in historical past (about 45%). The Dow lagged in 2023, and sometimes lags bull markets. However because the lag results of these 11 Fed price cuts continues to bleed into the financial system, we may see buyers flock to the relative stability in money flows and enterprise moats that a lot of the 30 Dow shares have.
6. Bitcoin ETFs get accredited in bunches by the SEC… and Bitcoin promptly falls beneath 30,000
I’m a fan of the way forward for the blockchain, and as of this writing, personal each a Bitcoin-linked ETF (BITO) and a blockchain ETF (BLOK) in my private portfolio, by way of shares and/or name choices. However I don’t for a minute take into account them to be investments simply but. There’s an excessive amount of Dot-Com period, “can’t go improper” sentiment round this entire a part of the market. So whereas I’m at all times glad to purchase a great tactical/buying and selling chart as I did with these, I additionally preserve them on a super-short leash. And there’s probably the beginning of a topping course of going down right here. Would this be the primary time the “apparent” factor to personal going right into a 12 months turned out to be one of many worst? Under no circumstances!
7. The “refinancing wall” of company bonds shocks the market sooner than anticipated
The rationale some are befuddled by the rally in small caps, however particularly the Russell 2000 small cap index, is as a result of that index is, basically talking extra like small “c_ap” than small cap if you already know what I imply (trace: lacking letter is “r”). So a spike that recovers only a fraction of the heavy losses on this market section is nice, however at this level appears extra prefer it was a part of a manufactured “small cap impact” in that buyers pile into small caps close to 12 months finish. The explanations for have modified over the a long time, however issues like this and seasonality and different market historical past tends to be a really highly effective drive in a 24/7, momentum-driven investing world that we’ve now. And there’s a big challenge for smaller companies that must refinance lots of maturing debt simply to remain in enterprise. That implies that any sort of macro drive that disrupts sentiment may produce a “purchaser’s strike,” simply on the improper time. This may hit small cap corporations which are unstable, in addition to junk bonds.
8. A big geopolitical occasion comes out of nowhere, and it isn’t one of many present sizzling spots
It doesn’t come from Ukraine-Russia, funding adjustments from the US and others for that conflict or the Israel-Hamas conflict. It comes from someplace that the market doesn’t even have on its radar but. As a result of that’s usually the way it occurs. Not a pandemic, however simply as “out of left area” at a time when, as in early 2020, the worldwide inventory market was already stretched and susceptible. I do consider (and we’ll by no means know for certain) that 2020 would have been a tough 12 months for shares even when the pandemic didn’t happen. If something, the rebound was a lot stronger than if the financial system didn’t falter and free cash was not handed out over and over. A extra pure financial “occasion” was more and more being signaled in early 2020, however the causes stopped mattering when Covid hit.
9. A serious financial institution goes underneath, and this time authorities can’t cease the unfold
“Main” might be an enormous regional or perhaps a cash middle financial institution, within the US or overseas. We clearly dodged a bullet in March 2023 with the collapse of some banks, however their rescue was so fast, it was rapidly a forgotten challenge. So was Bear Stearns, after which Lehman occurred. I’m not anticipating something on that degree, however in contrast to many in my area, I’m a great distance from ruling it out in 2024 or 2025. So many banks nonetheless have a lot stacked in opposition to them, particularly if long-term charges transfer up once more.
10. Neither Trump nor Biden finally ends up being his social gathering’s nominee for President
This isn’t my concept for a shock. I completely, positively stole it from veteran market guru Doug Kass, who’s certainly one of my favorites. He postulated this in his annual surprises listing and I immediately stated to myself, “sure it could be a shock to the markets, and sure it may occur.” Not will, however may. I hesitated to even “go there” as a result of I by no means discuss politics on this area. However with 2 fellas of the ages of that pair, and a few viable second-stringers rising in every social gathering, wouldn’t that be a tornado in 2024?!
So, that’s the listing. I’d love to listen to yours within the remark part. Most significantly, I hope that the principle message of this text: NOT the specifics of the “shock” listing, however the idea of accounting prematurely for a lot of doable eventualities, in order that they don’t shock you and your cash, was useful to learn.
Right here’s to a peaceable, affluent and gratifying new 12 months!
Editor’s Notice: This text covers a number of microcap shares. Please pay attention to the dangers related to these shares.