Weekly Wisdom – January 3, 2024

By Hightower Great Lakes on January 3, 2024

Unusual Year

The new year brings new ideas, concepts and themes as performance resets and investors seek an early edge. We are excited for 2024 but thankful for the past year. As we recap 2023, we find it important to take note of what drove market performance and why.

The big indices had a very strong year, as the S&P 500 finished up +26.29%, the Nasdaq Composite finished up +44.64% and the Dow Jones Industrial Average was up +16.18% in 2023.[1] Last year marked the 22^nd best year in history for the S&P 500, and the fourth best year in the Nasdaq’s history. Both indices closed within 1% of their all-time highs.

Seven stocks, referenced in the media as the Magnificent Seven, drove positive performance considering their significant weightings within each of the forementioned indices. The Magnificent Seven is made up of Alphabet (GOOGL), Amazon (AMZN), Apple, (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). These seven names had an average 2023 total return of ~107%, much larger than any of the major indices.[2]

Looking ahead, Wall Street, as well as historical data, is pointing towards a positive 2024 for the overall market. Consensus is calling for 7.8% earnings growth for the S&P 500 in 2024.

The consensus target price for the S&P 500 is sitting at $4,832, which reflects 2.2% growth y/y.[3] Historically, when the S&P 500 finishes up 20% or more and within 2% of all-time highs, the following year tends to be green; this has remained true within seven of the last nine years. Finally, it is an election year; historically, the S&P 500 has been up 75% of election years, with an average return of 7.5%.[4] 

Walk Down Memory Lane

Throughout the year, the S&P 500 moved with an unexpected rhythm. After a strong start to the year, the regional banking crisis in March incited a -7% sell-off. Then, an even sharper recovery followed, spurred by the artificial intelligence (AI) craze. Nvidia’s second quarter earnings sent markets off to the races.[5]

The summer doldrums acted as they normally do, and worsening sentiment caused a second significant sell off, this time -8% within two months. However, improving inflation metrics, the increasingly dovish Federal reserve, and the hope for a soft landing stoked the fire, leading to a dizzying 16% return in the final two months of 2023. Ten companies led the charge in 2023, each positioned well in their own right, many reaching all-time highs.

The undisputed winner, Nvidia, rose 239% after benefiting hugely from AI and high-performance computing. Its graphic processing units (GPUs) resonated with data centers, powering the insatiable hunger for AI. Meta Platforms, which struggled throughout 2022, found its groove again with cost cuts and AI advertising improvements rising 194%.

Travel titans Royal Caribbean (RCL) and Carnival (CCL) embarked on a thrilling comeback voyage, surging 162% and 130% respectively. After weathering the pandemic’s storm, both capitalized on pent-up demand for travel. Back on land, the interest rate sensitive housing stocks boomed in the final two months of the year, led by PulteGroup (PHM) rising 129% through December’s close.

In a similar vein to Nvidia, the promise of an AI-fueled future drove Advanced Micro Devices (AMD) and Broadcom (AVGO) forward 128% and 104% respectively. Advanced Micro Devices, the chipmaker’s chipmaker, rose not necessarily on stellar earnings but rather the promise of a solid future, competing with Nvidia.

Meanwhile Broadcom’s data-center networking semiconductors saw early stages of growth. While it declined in in the second half of 2023 due to questions surrounding Musk’s leadership and deliveries, Tesla’s electrifying run during the first half permitted a still impressive 102% gain.

Salesforce (CRM), marketing itself as an AI-driven data center, saw gains of more than 98% through year end. The tenth, and arguably most impressive and surprising of the bunch, is General Electric (GE), which rose 98% in 2023.

The industrial giant shed its aging skin and emerged a leaner, tech-savvy innovator, with tremendous exposure to the booming aerospace recovery after spinning its healthcare unit early in the year. The company plans to spin its renewables business within the coming months of 2024.

From semiconductor designers to cruise ships to aircraft engine manufacturers, these ten stocks proved their might. The ability to innovate and adapt was key in 2023, and we continue to look for companies with similar set-ups into 2024.

Holiday Consuming

As we look back on 2023 data, it becomes obvious that spending was stronger than expectations, which provided context for the uplift that was seen in the U.S. economy. We like to reference that U.S. consumer spending accounts for nearly 70% of U.S. GDP – a nation of spenders.

Consumers’ ability to spend is powered by mid-single-digit wage growth and robust job openings. We saw this come to life over the holiday season, as Mastercard Spending Pulse reported that holiday retail sales (ex-autos) increased +3.1% y/y.[6] Within this, ecommerce sales rose +6.3% y/y and brick and mortar sales rose +2.2% y/y. Some analysts estimated that December 23 was the biggest sales day of the year, topping black Friday.

We heard similar commentary from Nike’s (NKE) earnings call just a few weeks ago. As Nike’s (NKE) CEO John Donahoe discussed, “…looking at holiday, we outpaced the industry, driving growth of close to 10%. Nike digital had its strongest Black Friday week ever and a record number of consumers shopped in our stores over the long Thanksgiving weekend.”[7]

It is always reassuring to hear these comments from an industry leading brand such as Nike, especially when it intertwines with macro-economic reports. Even as the Fed keeps interest rates higher, the U.S. consumer has remained strong with solid wage growth and low unemployment.

Chart 1: Adobe Analytics: Holiday Spending Since 2019[8]

Conference Season Preview

The new year will surely bring new opportunities and ideas. We are excited for the upcoming ICR conference next week which should bring a flurry of news and updates from attending companies. Last year, over 50 different companies provided an update in some capacity in early/mid-January 2023.

These updates will help identify opportunities, as companies set earnings expectations for the year. In addition, the early earnings reporters, such as Conagra (CAG), Lamb Weston (LW) and Constellation Brands (STZ), all report during the first week of January. We are looking forward to indulging in all the information coming shortly as we keep our eyes peeled for investment ideas.

Click here to read last week’s Weekly Wisdom (12/20).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Source: FactSet. As of January 2, 2024.

[2] Source: Bloomberg. As of January 2, 2024.

[3] Source: Bloomberg. As of January 2, 2024.

[4] Source: Bank Of America. As of January 1, 2024.

[5] Source: Reuters. As of May 24, 2023.

[6] Source: Mastercard SpendingPulse. As of December 26, 2023.

[7] Source: Nike Q2 Earnings Call. As of December 21, 2023.

[8] Source: Mastercard spending data. As of December 26, 2023.