The tailwinds that helped cushion the US economy are fading rapidly. As inflation normalizes, I expect the S&P 500 to remain rangebound in 2024. Read more to find out how I am designing my portfolio.
Thanks!! Glad you enjoyed the post. With tech, I am a little cautious on the overall sector, but I think there are pockets in tech that are still undervalued and undercrowded and have much bigger potential to run than the generic Mag 7.
I think PFE and CVS are good choices. I don't have an opinion at the moment on SBUX. In the healthcare sector, I am bullish on JNJ, MRK. I am also long term bullish on DXCM and ISRG, which sort of falls in the medical devices category, I think. As for staples, the usual, KO and PEP are undervalued imo.
As for Energy, I am invested in USO, which tracks the spot price for WTI Crude. Plus, I am also bullish on CVX and XOM. At the same time, I am not an energy expert, as a result, I mostly stick to companies I know, or invest in USO and XLE if I am bullish on the macro, like now.
I love your work Amrita. I find this article especially fitting of your Substack's name as I think it is very pragmatic and also very optimistic. That is a compliment, and I very much hope that you are right with your outlook.
Having said that, I think what you and most mainstream and consensus analysts are missing is that the US in now firmly in Fiscal Dominance. I urge you and everyone else to please consider what that means as the risks and consequences are too great to ignore:
I am fully aware of the risks that fiscal dominance presents in the coming decade. To me, that points to lingering long term inflationary pressures, or worse stagflation, where the US debt levels continues to be at high levels and the economy tips into an actual recession, and the USD comes under speculative attack. Is this what you are referring to?
As for now, in the immediate term, I don't yet see stagflation playing out, while as we get more and more data and the economy progresses through the cycles, this actually is a real threat.
I still have zero hedges, and my main investment account is roughly 40/40 SPY and QQQ with 6 stocks currently. MSFT NVDA AVGO CRM ADBE AMD. Was thinking of adding XLE but haven't, as energy looks good going into 2024. I'm still aggressive. Trading and Investing.
If there was a serious change of sentiment, I would change this weighting I have going. As of now, I think we will probably go over or near 5k in 2024, first few months, but close 2024 under 5k(4500-4800) with a choppy economic situation. My take is no recession from rates but also not enough slowing of activity from high rates. So fewer rate cuts than expected as I would bet on 50 basis points of cuts right now BUT at the tail end of 2024.
Thanks for providing your outlook, I think you and I are fully aligned, and yes, the momentum will most likely get us up to 5000-5125, imo. May need to reassess hedges then.
Hi Anna, I am sorry that it took me a while to get back to you. First of all, thank you for buying me a coffee and a muffin.
Glad you enjoyed the post.
As to your question, I am overweight gold, while neutral on silver. The reasoning behind overweight on gold is two fold.
1) If inflation has indeed peaked for this cycle and the Fed will start to lower rates, that would mean real yields will start to come down from current levels as the US economy slows from current levels. Gold stands to benefit from there.
2) If the US economy indeed tips into a recession, gold may see some short term volatility, but will once again benefit as interest rates are slashed to 0.
3) If the US economy once again starts to heat up before inflation fully comes down to 2.2-2.5%, I believe it will be driven by breakeven inflation in the 10Y treasury bond going up and not real yields, as the longer the Fed are expected to hold rates high (or higher), the bigger the chances of long term slowdown. This also bodes well for gold.
4) The only circumstance where gold will not do well, if we see a similar post GFc era of monetary easing, low inflation and growth. Given, the direction of US Treasury spending projections and other secular forces, I believe this decade will be a story of higher inflation relative to 2010's.
Hence, my thesis for gold.
As for silver, while I am long term bullish, I would be neutral in 2024, as silver is very tightly correlated to economic cycles and since I am expecting a slowdown this year, I wouldn't be sure of any sizable moves in 2024 particularly.
Please let me know if this helped and happy to answer any other questions.
Just out of curiosity: in your base case ("The Grind"), you assume fed funds will decrease only slightly next year. However the Fed´s dot plot projects a decline of 75bps, and markets are pricing in even more. So you are a bit of an outlier here, and I´d be curious to hear why you think rates will stay high.
Copying the comment from the restack: I think 75 bp of rate cuts may take place, or it could be lower, I think markets are once again getting ahead of themselves in terms of pricing in higher number of rate cuts.
The main reason, why I think, rates will not be cut too aggressively is because the underlying inflationary pressures are still lingering, with record net worth of US households, level of government spending, industrial and energy policy which will keep prices of commodities at a higher level. Plus, when you look at indicators of inflation expectation, such as the breakeven or inflation swaps, investors are pricing in inflation to remain at 2.2-2.5% for the next 5-10 years, which is higher than the 1.5%-2.0% inflation expectation in 2015-2020.
Great post Amrita, love the journey you took me through. I'd still say long duration bonds are a buy although its overbought at the moment. You can see how the dive below 3.9 on then ten year rattled the bulls.
Thanks Sully for your kind words, I am delighted that you enjoyed the post.
The bond-equity correlation will probably start to weaken, where bonds outperform equities as a whole, as we enter the sub 3% PCE. As for 10Y, I think if we are avoid a recession (which I think will be the case), yields will be hovering around 3.5% ish, which still makes the case for long duration somewhat, but I will be still careful, also it is overbought like you said.
Great article, thought provoking. Markets seem a bit frothy at the moment. I closed some puts to be conservative, but then watched with envy as Semi and others continue to climb!
It does seem frothy indeed, but I think the bullkish momentum is not be messed around with either. As of now, there is nothing in the way of of stopping the markets from creating a high, as earnings as over. So, it is reasonable to expect a move to 4800-5000 in the short term, before the market gets a reality check from earnings, imo.
Thanks for the note Amrita, I enjoy your contributions.
My portfolio is a hybrid fixed income alternative- big anchor in Muni bonds, some high yield BDCs and the like, and puts on solid companies. Plus a couple turnaround casino flyers thrown in, like WU.
An absolute gold mine of financial market and macro insights Amrita. Thank you for all your hard work to put this together. It’s been a huge help to me in assessing the position of my portfolio heading into 2024.
I am so glad that the post helps, if you have any positioning or investment ideas for 2024 that you want to share, feel free and let me know if you have any questions.
I also wrote a similar blog about Goldman Sachs projections in the coming year. I'm bullish on the S&P 500. Analyst from Goldman Sachs are emphasizing that there will likely be a 15% chance of a recession, very lower chance. Not to mention, higher than expected GDP growth, normalized labor market and inflation is down, projecting to about 2-2.5% in the coming years. I think now is the time to take full advantage of the market. The S&P 500 and the A.I. world
I think Goldman Sachs is probably a little too optimistic, but I will be with you to ride the wave in S&P 500 for now, until sentiment changes, earnings could be one of the catalyst, but we shall see.
Oh I'm all good for 2024 although I also understand the possibility of a pullback from your analysis. Let's see then if Goldman Sachs got me brainwashed, haha.
I'm probably in the minority, but I'm not looking forward to 2024. I think the lagged effects of past interest rate hikes are going to continue tightening conditions in the first half. Consumer debt is already through the roof. Bankruptcies are on the rise. If the labor market ever cracks, this could get really ugly really fast. I've been locking in 5% T-bill yields for several months.
I think locking in 5% yields is a great idea, what duration are you talking about?
In the meanwhile, I would echo your fears as well going into 2024, the reason I am not bearish yet, is a) size of government spending , b) consumers still somewhat resilient plus pockets of the economy still quite strong, c) if the Fed drops its rate, the fear around bankruptices will be delayed for some time and d) election year.
I do believe that we are on the cusp on the next phase of inflation surprise again sometime in the next 12 months or less, and when that happens, we will see some proper downside in the market, or if earnings comes to surprise on the downside even earlier.
I will be one happy duck when I can get to buy my bag of specialty chocolate chip cookies at my local Safeway (yes, they have those in Vancouver too) for $5 that I used to back in 2020, but are now close to $10.
In our analysis for 2024, investors will likely front-run the reckless policies of the FOMC and buy stocks. The most crucial factors will be how much money is available and how quickly it will be invested in the stock market. We favor growth stocks in 2024. Our strategy involves buying during times of fear and selling during times of greed, rather than shorting stocks.
Fully agree with you, this is not a time for shorting stocks, as the momentum and the bullishness can't be ignored.
I also like the idea of buying stocks of certain companies that are oversold out of no good fundamental reasons, like we saw in the case of Ozmepic and how it led massive outflows away from staples and even healthcare, I think those are just pure "free money" opportunities to grab on to.
As for growth stocks, I am selectively bullish, which particular companies are you looking at?
We focus on growth companies like Google, Apple, Microsoft, Meta, Nvidia and Tesla that play an essential role in our daily lives. Our proprietary algorithms help us identify opportune entry and when not to buy for these investments. We firmly believe in a buy-and-hold approach for this segment, as fundamentals, not technical charting indicators, dictate the long-term trajectory of growth company valuations. Equities present the inherent potential for long-term appreciation because basic human needs drive the demand for goods and services. Every day, we wake up, work hard to provide for ourselves and our families, and strive to build a better future. Our conviction in growth companies stems from the understanding that strong fundamentals ultimately determine long-term price trends. Holding these companies and letting time run its course can lead to undervaluation, followed by inevitable price increases as underlying fundamentals evolve to support their true worth.
I'm also emphasizing those (overweight) sectors, as well as tech in my portfolio. Real macro insights!
Thanks!! Glad you enjoyed the post. With tech, I am a little cautious on the overall sector, but I think there are pockets in tech that are still undervalued and undercrowded and have much bigger potential to run than the generic Mag 7.
Excellent detailed analysis, thank you Amrita.
Thanks Gary, thrilled that you enjoyed the post.
What healthcare stocks are you bullish on? Same with staples? Im looking at SBUX PFE and CVS
I think PFE and CVS are good choices. I don't have an opinion at the moment on SBUX. In the healthcare sector, I am bullish on JNJ, MRK. I am also long term bullish on DXCM and ISRG, which sort of falls in the medical devices category, I think. As for staples, the usual, KO and PEP are undervalued imo.
Thank you I’ll look into the healthcare stocks you mentioned. How about Energy? I’m bullish on CVX, BTE, TDW, and RIG. Any suggestions here?
As for Energy, I am invested in USO, which tracks the spot price for WTI Crude. Plus, I am also bullish on CVX and XOM. At the same time, I am not an energy expert, as a result, I mostly stick to companies I know, or invest in USO and XLE if I am bullish on the macro, like now.
I love your work Amrita. I find this article especially fitting of your Substack's name as I think it is very pragmatic and also very optimistic. That is a compliment, and I very much hope that you are right with your outlook.
Having said that, I think what you and most mainstream and consensus analysts are missing is that the US in now firmly in Fiscal Dominance. I urge you and everyone else to please consider what that means as the risks and consequences are too great to ignore:
https://thexproject.substack.com/p/everyone-is-missing-the-point-about-5dc
I am fully aware of the risks that fiscal dominance presents in the coming decade. To me, that points to lingering long term inflationary pressures, or worse stagflation, where the US debt levels continues to be at high levels and the economy tips into an actual recession, and the USD comes under speculative attack. Is this what you are referring to?
As for now, in the immediate term, I don't yet see stagflation playing out, while as we get more and more data and the economy progresses through the cycles, this actually is a real threat.
Lot of good analysis on why to not be all in 2024. Consumer stretched, corporate debt, rates, and liquidity. Great one, Amrita.
Thanks Eric, glad you liked the post. How are you positioned for 2024?
I still have zero hedges, and my main investment account is roughly 40/40 SPY and QQQ with 6 stocks currently. MSFT NVDA AVGO CRM ADBE AMD. Was thinking of adding XLE but haven't, as energy looks good going into 2024. I'm still aggressive. Trading and Investing.
If there was a serious change of sentiment, I would change this weighting I have going. As of now, I think we will probably go over or near 5k in 2024, first few months, but close 2024 under 5k(4500-4800) with a choppy economic situation. My take is no recession from rates but also not enough slowing of activity from high rates. So fewer rate cuts than expected as I would bet on 50 basis points of cuts right now BUT at the tail end of 2024.
Thanks for providing your outlook, I think you and I are fully aligned, and yes, the momentum will most likely get us up to 5000-5125, imo. May need to reassess hedges then.
Subscribed...why did it take me so long to find this?! You really think gold is overweight? silver?
Hi Anna, I am sorry that it took me a while to get back to you. First of all, thank you for buying me a coffee and a muffin.
Glad you enjoyed the post.
As to your question, I am overweight gold, while neutral on silver. The reasoning behind overweight on gold is two fold.
1) If inflation has indeed peaked for this cycle and the Fed will start to lower rates, that would mean real yields will start to come down from current levels as the US economy slows from current levels. Gold stands to benefit from there.
2) If the US economy indeed tips into a recession, gold may see some short term volatility, but will once again benefit as interest rates are slashed to 0.
3) If the US economy once again starts to heat up before inflation fully comes down to 2.2-2.5%, I believe it will be driven by breakeven inflation in the 10Y treasury bond going up and not real yields, as the longer the Fed are expected to hold rates high (or higher), the bigger the chances of long term slowdown. This also bodes well for gold.
4) The only circumstance where gold will not do well, if we see a similar post GFc era of monetary easing, low inflation and growth. Given, the direction of US Treasury spending projections and other secular forces, I believe this decade will be a story of higher inflation relative to 2010's.
Hence, my thesis for gold.
As for silver, while I am long term bullish, I would be neutral in 2024, as silver is very tightly correlated to economic cycles and since I am expecting a slowdown this year, I wouldn't be sure of any sizable moves in 2024 particularly.
Please let me know if this helped and happy to answer any other questions.
Thank you so much. I look forward to the calls! Great analysis.
Nice overview, congrats!
Just out of curiosity: in your base case ("The Grind"), you assume fed funds will decrease only slightly next year. However the Fed´s dot plot projects a decline of 75bps, and markets are pricing in even more. So you are a bit of an outlier here, and I´d be curious to hear why you think rates will stay high.
Copying the comment from the restack: I think 75 bp of rate cuts may take place, or it could be lower, I think markets are once again getting ahead of themselves in terms of pricing in higher number of rate cuts.
The main reason, why I think, rates will not be cut too aggressively is because the underlying inflationary pressures are still lingering, with record net worth of US households, level of government spending, industrial and energy policy which will keep prices of commodities at a higher level. Plus, when you look at indicators of inflation expectation, such as the breakeven or inflation swaps, investors are pricing in inflation to remain at 2.2-2.5% for the next 5-10 years, which is higher than the 1.5%-2.0% inflation expectation in 2015-2020.
This is a very good post! For me as a German it is interesting to see that Europe has no place in your portfolio.
Thank you so much! That means a lot to me coming from you!
Great post Amrita, love the journey you took me through. I'd still say long duration bonds are a buy although its overbought at the moment. You can see how the dive below 3.9 on then ten year rattled the bulls.
Thanks Sully for your kind words, I am delighted that you enjoyed the post.
The bond-equity correlation will probably start to weaken, where bonds outperform equities as a whole, as we enter the sub 3% PCE. As for 10Y, I think if we are avoid a recession (which I think will be the case), yields will be hovering around 3.5% ish, which still makes the case for long duration somewhat, but I will be still careful, also it is overbought like you said.
Great article, thought provoking. Markets seem a bit frothy at the moment. I closed some puts to be conservative, but then watched with envy as Semi and others continue to climb!
It does seem frothy indeed, but I think the bullkish momentum is not be messed around with either. As of now, there is nothing in the way of of stopping the markets from creating a high, as earnings as over. So, it is reasonable to expect a move to 4800-5000 in the short term, before the market gets a reality check from earnings, imo.
Thanks for the note Amrita, I enjoy your contributions.
My portfolio is a hybrid fixed income alternative- big anchor in Muni bonds, some high yield BDCs and the like, and puts on solid companies. Plus a couple turnaround casino flyers thrown in, like WU.
Thanks for sharing, always interesting to see what all are people investing in.
An absolute gold mine of financial market and macro insights Amrita. Thank you for all your hard work to put this together. It’s been a huge help to me in assessing the position of my portfolio heading into 2024.
I am so glad that the post helps, if you have any positioning or investment ideas for 2024 that you want to share, feel free and let me know if you have any questions.
I also wrote a similar blog about Goldman Sachs projections in the coming year. I'm bullish on the S&P 500. Analyst from Goldman Sachs are emphasizing that there will likely be a 15% chance of a recession, very lower chance. Not to mention, higher than expected GDP growth, normalized labor market and inflation is down, projecting to about 2-2.5% in the coming years. I think now is the time to take full advantage of the market. The S&P 500 and the A.I. world
I think Goldman Sachs is probably a little too optimistic, but I will be with you to ride the wave in S&P 500 for now, until sentiment changes, earnings could be one of the catalyst, but we shall see.
Oh I'm all good for 2024 although I also understand the possibility of a pullback from your analysis. Let's see then if Goldman Sachs got me brainwashed, haha.
hahaha, at the end of the day if the real economy grows, it is best for all. The market will do its own things on an ongoing basis.
I'm probably in the minority, but I'm not looking forward to 2024. I think the lagged effects of past interest rate hikes are going to continue tightening conditions in the first half. Consumer debt is already through the roof. Bankruptcies are on the rise. If the labor market ever cracks, this could get really ugly really fast. I've been locking in 5% T-bill yields for several months.
I think locking in 5% yields is a great idea, what duration are you talking about?
In the meanwhile, I would echo your fears as well going into 2024, the reason I am not bearish yet, is a) size of government spending , b) consumers still somewhat resilient plus pockets of the economy still quite strong, c) if the Fed drops its rate, the fear around bankruptices will be delayed for some time and d) election year.
I do believe that we are on the cusp on the next phase of inflation surprise again sometime in the next 12 months or less, and when that happens, we will see some proper downside in the market, or if earnings comes to surprise on the downside even earlier.
As for allocation outside of bonds, where else are you invested in?
Good to know Amrita! Thank you for your positive analysis 🧐
Now if prices of everything would just come down to reasonable levels...... that’s probably a pipe dream 💭
Stay beautiful! 🤗✨
Thanks Charlotte!!!
I will be one happy duck when I can get to buy my bag of specialty chocolate chip cookies at my local Safeway (yes, they have those in Vancouver too) for $5 that I used to back in 2020, but are now close to $10.
In our analysis for 2024, investors will likely front-run the reckless policies of the FOMC and buy stocks. The most crucial factors will be how much money is available and how quickly it will be invested in the stock market. We favor growth stocks in 2024. Our strategy involves buying during times of fear and selling during times of greed, rather than shorting stocks.
Fully agree with you, this is not a time for shorting stocks, as the momentum and the bullishness can't be ignored.
I also like the idea of buying stocks of certain companies that are oversold out of no good fundamental reasons, like we saw in the case of Ozmepic and how it led massive outflows away from staples and even healthcare, I think those are just pure "free money" opportunities to grab on to.
As for growth stocks, I am selectively bullish, which particular companies are you looking at?
We focus on growth companies like Google, Apple, Microsoft, Meta, Nvidia and Tesla that play an essential role in our daily lives. Our proprietary algorithms help us identify opportune entry and when not to buy for these investments. We firmly believe in a buy-and-hold approach for this segment, as fundamentals, not technical charting indicators, dictate the long-term trajectory of growth company valuations. Equities present the inherent potential for long-term appreciation because basic human needs drive the demand for goods and services. Every day, we wake up, work hard to provide for ourselves and our families, and strive to build a better future. Our conviction in growth companies stems from the understanding that strong fundamentals ultimately determine long-term price trends. Holding these companies and letting time run its course can lead to undervaluation, followed by inevitable price increases as underlying fundamentals evolve to support their true worth.
You have said it beautifully. Fully agree with you on the buy and hold strategy for companies such as these.