Monthly Video Market Update

Ron Rough, Chief Investment Officer, presents our January video market update and shares what FSA is doing to respond.

Stock Market Update Transcript

Hello. This is Ron Rough with the market update video for January. Twenty twenty-three is in the books. When I was recording this last quarter, I probably sounded a little concerned. The market was very flat, even though the S&P was doing nicely, technology stocks were doing nicely. The average stock was actually negative for the year.

Well, as you see the numbers in front of you here, the year finished with quite a spurt into year-end. November and December, the S&P was up I want to say 14%. Small caps were up over 20% in the last two months of the year. In all of these areas of the market, as you can see, everything finished pretty well. Large companies, small companies, foreign stocks, all well into double digits. The only area that really finished negative was commodities, and that was primarily due to oil prices falling. So quite the turn of events from three months ago. So, that’s good, I guess. You can also see that you could have earned 5% just holding your money in T-bills this past year, so that was one of the beneficiaries of rising interest rates, is that money market rates went higher.

Now, if we look at individual sectors, you can see we’re still the story that we’ve been talking about all year, everything oriented around technology. The three sectors that you see on the left up 50 and 40% all had these big cap technology names, Apple, Microsoft. Consumer discretionary has Tesla and Amazon in it. Communications has Google and Facebook in it. So, these handful of stocks dominated returns last year. So, you can see the other areas of the market, these other eight sectors, on average were only up 4% for the year. So, everything revolved around technology, and frankly, everything revolved around those eight stocks last year.

Now, what was encouraging is if you look in the last quarter of the year, everything did participate. So, consumer staples and healthcare and industrials and financials all had nice gains in the last quarter of the year. So that was good to see because that’s an indication that maybe market breadth is improving, the number of stocks going up. Instead of just being eight stocks, more and more stocks are participating, and that’s a sign of a healthy market. So, that’s one of the things that we’ll be really interested in for 2024, if that can continue. What we saw in November, December, if that can carry into this year, that’ll be a very healthy sign, especially given the fact that our portfolios are back towards fully invested. So, we’d like to see the trends continue.

This chart from Ned Davis is interesting. It highlights just how much impact was made by these eight stocks that we’ve talked about really all year. The top chart shows those stocks up over 70% for the year. The S&P was up 24% if you don’t count dividends. And then that line way at the bottom that’s not up very much, only up 11%, that’s the other 492 stocks of the S&P 500. So you take out those eight big Cap Tech names, a pretty mediocre performance everywhere else, and that’s one of the issues that we’ve talked about all year, and hopefully the action we saw at the end of the year is a sign of that changing, which would be very healthy indeed.

So what are we looking for as we start ourselves into this year? What you’re looking at here is a three-year chart of the S&P 500. So you have the up market over to your left, you have the down market in 2022, and then the recovery last year.

So, in a short-term basis, you can see a nice uptrend in the S&P 500 over the past year. That’s why our portfolios are back to fully invested, and it’s why we’re fairly optimistic coming into 2024.

But here’s the one area that we’re cautious about. The market hit a peak in early January of 2022, and this horizontal line that you see at the top of the chart marks that high, it’s basically 4800 on the S&P 500. You can see we have not broken through that yet. The market has bumped up to it a couple of times, and as we’re recording this video in early January, still haven’t broken through it, but we are close. But until we can break through that, that’s the one fly in the ointment. If the market can’t get above that, we could find ourselves in just a much more choppy, frustrating market environment than I think many of us are expecting.

So that’s the one area that we’ll be watching as well this year – so, participation, breadth, the market, are we seeing a lot of stocks participating. Then number two, can in fact the markets break through their prior highs that were set at the end of ’21 and early ’22? So, that’s basically what we’re looking for.

With interest rates on the way down, inflation on the way down, the economy still fairly strong, there’s certainly reasons to be optimistic. Presidential election years are generally positive for the market, so there are reasons to be optimistic. But we’ll be looking for the trends, and that obviously will dictate our trades for the year.

So, until our next recording, thank you for watching.


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