- The year 2023 has been a bullish year for stock markets around the world.
- At the same time, some asset classes had a year to forget.
- In this article I will share my four predictions for the financial markets for the coming year.
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Despite the bullish year, 72% of stocks underperformed the index in 2023.
Notable annual results include Abercrombie & Fitch Company (NYSE:), which posted 285% growth, its best since going public in 1996, even surpassing Nvidia's (NASDAQ:) impressive +239% growth.
Apple (NASDAQ:) rose +50%, solidifying its position as the world's largest company.
Meanwhile, the 60/40 portfolio (60% stocks, 40% bonds) delivered a performance not seen since 1996 in November and December.
Japanese stocks enjoyed their biggest annual gains in a decade, with the index rising +25% and the index rising +28%, marking their best performance since 2013.
The Magnificent Seven, the seven largest U.S. technology stocks, contributed 64% to the S&P 500's rally this year.
They are expected to post a remarkable 22% earnings growth next year, twice the S&P 500's rise.
Notable performers include Nvidia (+239%), Meta (NASDAQ:) (+194%), Tesla (NASDAQ:) (+102%), Amazon (NASDAQ:) (+81%), Google (NASDAQ:) (+58%), Microsoft (NASDAQ:) (+58%) and Apple (+49%).
Looking at the rest of the market, the best performing stocks of the year were:
- Soleno Therapeutics Inc (NASDAQ:) (+1932%)
- Carvana Co (NYSE:) (+1018%)
- Cipher Mining (NASDAQ:) (+637%)
- Marathon Digital (NASDAQ:) (+587.3%)
- ImmunoGen Inc (NASDAQ:) (+497.8%)
- MoonLake Immunotherapeutics (NASDAQ:) (+475.1%)
With markets elsewhere in the world in mind, here are the annual performances in no particular order:
- Spanish (+24.76%)
- British (+4%)
- (+21.31%)
- Japanese Nikkei (+28%)
- (+20.19%)
- (+17.52%)
- Italian (+30.03%)
- S&P 500 (+24.23%)
- (+13.70%)
- (+43.42%)
Commodities, Cryptos and Currencies: The Best and Worst Performers in 2023
Futures posted their biggest annual gain in over three decades (+61% in 2023), driven by crop problems in West Africa, the world's largest producing region.
The Turkish lira hit a record low () after the government raised the minimum wage by 49%, causing inflation to rise and depreciation of -58.5% against the dollar this year, making it the second-worst performing emerging market currency made.
The company completed its worst year since the start of the pandemic as Wall Street expects the Federal Reserve to cut interest rates in 2024.
In contrast, the US dollar had its best year since 2017, rising +5.4% against the dollar, its most significant gain since 2017. The US dollar posted its strongest annual performance since 2010.
The world's best performing assets include (+158%), (+97%), (+89%), (+61%), iron (+54%), rice (+43%), (+18%), and (+14%).
On the other hand, the worst performing assets include (-78%), coal (-64%), LNG (-57%), (-52%), (-44%) and (-10%).
Investor Sentiment (AAII)
Bullish sentiment, i.e. the expectation that stock prices will rise over the next six months, is at 46.3% and remains above the historical average of 37.5%.
Bearish sentiment, the expectation that stock prices will fall over the next six months, is 25.1%, below its historical average of 31%.
With optimism still high heading into 2024, here are my four predictions for all markets:
1. S&P 500 is poised for another bullish year
The year 2023 is over and we are heading into 2024. The typical question at this point is usually what we can expect from stocks for the new financial year. I tell you that I am optimistic.
Since I expect the S&P 500 to perform positively next year, albeit with a possible decline compared to 2023, I would not be surprised if the gains were less than half. Optimism for a fruitful year is based on several compelling factors:
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The market exhibits robust breadth, indicating a higher percentage of rising stocks compared to falling stocks.
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Interest rate cuts from the Federal Reserve (as well as the European Central Bank) are expected, particularly three to fivefold, with no adjustments expected before March.
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Expectations of a “soft landing” for the US economy that would avoid recession add to the positive outlook.
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Corporate earnings forecasts provide an interesting outlook.
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Historical patterns that have worked well historically were set in motion:
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An election year with an incumbent president, such as 2024, is historically consistent with a bullish scenario for US stocks. Since 1949, the S&P 500 has averaged an increase of almost +13% in such election years.
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Eight-week winning streaks, reflecting the current trend, tend to be positive for U.S. stocks over the next 12 months.
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If the S&P 500 enters December with an annual gain of more than +10%, the following year sees an average gain of +19.5%.
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Historical data underscores the importance of the latest pattern, pointing to strong performance for the S&P 500 in January, the first quarter and the full year starting in December, with gains of over +10%:
- January: an average increase of +2.4%.
- First quarter: an average increase of +6.6%.
- Year: an average increase of +19.5%.
While past returns are no guarantee of future results, combining these historical patterns with the four reasons above strengthens optimism.
2. Bitcoin will continue to rise in 2024
Bitcoin has seen a remarkable +175% rise from its lows, and investors are looking ahead to a promising 2024 for two main reasons:
- Halving: This event, which occurs approximately every four years, halves the rewards Bitcoin miners receive for validated transactions. The main goal is to maintain balanced and stable growth in the Bitcoin market by regulating the issuance of new coins and restricting those already in circulation. Previous halving events occurred in 2012, 2016 and 2020.
- SEC Decision on Bitcoin Spot ETFs: Investors are awaiting a positive stance from the Securities and Exchange Commission (SEC) ahead of the January 10 deadline, supporting the introduction of Bitcoin spot exchange-traded funds (ETFs) into the market. Companies like BlackRock (NYSE:), Fidelity and ARK Investment Management are eagerly awaiting the approval of such ETFs. Additionally, there is speculation about a possible conversion of the Grayscale Bitcoin Trust into an ETF in the near future.
3. The relationship between crude oil and US dollar will change
The latest data showed that crude oil inventories rose, reaching their highest level since last August.
Additionally, major shipping companies are resuming the Red Sea route as a U.S.-led maritime task force has been established to protect merchant ships in the region.
The share of global oil bought and sold in currencies other than the dollar has increased. An estimated 20% of the world's oil was bought and sold in other currencies this year as Russia and Iran sold to China and other buyers.
Some major emerging markets are moving into non-dollar commodity trading to reduce their dependence on the U.S. currency.
Twelve major commodity contracts settled in non-dollar currencies were announced in 2023, compared to seven in 2022 and just two between 2015 and 2021.
Previous attempts to dislodge the dollar from its dominant position in the oil industry have had limited success. China created a yuan-denominated oil futures market in 2018, but transactions were mainly carried out by domestic players.
4. The yen faces a turbulent year
The Nikkei index rose to a three-decade high in 2023 thanks to the Bank of Japan's ultra-loose policies and a weak yen.
However, this could change in 2024. The BOJ is the only one keeping interest rates negative, although the market expects that to change and raise them this year, something that hasn't happened since April 2007.
The BOJ's next monetary policy meeting will take place on January 22 and 23 and no changes are expected.
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Disclaimer: This article is for informational purposes only; It does not constitute a solicitation, offer, advice or recommendation to invest and is not intended to in any way incentivize the purchase of any assets. As a reminder, each type of asset is valued from multiple perspectives and is extremely risky. Therefore, every investment decision and the associated risk remains with the investor.
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