Weekly Wisdom – November 29, 2023

By Hightower Great Lakes on November 29, 2023

Holiday Shopping

2023 is one for the record books as holiday shopping hit new highs. According to the National Retail Federation, more than 200 million shoppers have taken advantage of holiday sales both in person and digitally. Last weekend, the gross amount of weekend spending totaled $38 billion, which is 7.6% better than 2022 levels and analyst expectations of 3-4%.

Black Friday shopping hit its own record, as consumers spent $9.8 billion in U.S. online sales, according to Adobe Analytics, an increase of 7.5% y/y.[1] Mastercard (MA) also reported that Black Friday spending was up 2.5% y/y. We find these data points encouraging, pointing to the strength of the U.S. consumer – something we’ve discussed for over a year.

Chart 1: U.S. Thanksgiving Weekend Shoppers[2]

Somewhat at odds with these reports, commentaries from Walmart (WMT), Macy’s (M) and Target (TGT) signaled caution. We believe much of the discrepancy has to do with the shift towards more online buying and the continued strength in the services sector (restaurants, travel, hotels, airlines, etc.).

It is also important to note that management remarks have a history of under-promising and over-delivering. The U.S. consumer is a force, and we like to remember the power that the consumer holds in this country as it accounts for nearly two thirds of U.S. GDP.   

In the last few months, the consumer has received some breathing room from the 15% drop in gasoline prices; continued lower inflation, especially in goods and rent prices; as well as lower interest rates. In addition, the consumer has maintained 3.4% savings growth, and while this is down from the double-digit levels seen during the pandemic, it is still above the long-term average.  

Looking Back on 2023

Given the sweeping outperformance of the magnificent seven stocks this year, performance relative to the benchmark S&P 500 (SPX) has been challenging year-to-date (YTD).

To offer some context, the commonly cited market-cap weighted SPX YTD total return is 20%, while the equal weighted S&P 500 (SPW) – which essentially removes the outsized impact of the magnificent seven stocks – has a total return of 5% YTD.

Interestingly, in the last three months, SPW has underperformed SPX by 3.75%, and even more telling is in last month the equal weighted SPW only lags the market-cap weighted SPX by 1%. This signals both improving fundamentals as well as breadth in the market. 

Chart 2: Historical December Sector Performance (XLK, XLC, XLY)[3]

It makes sense that the top three performing SPDR ETFs are those that include any number of the magnificent seven stocks. Those are the technology (XLK), communication services (XLC), and consumer discretionary (XLY) sector ETFs. Meanwhile, the worst performing SPDR ETFs are the utilities (XLU), consumer staples (XLP), and healthcare (XLV) sector ETFs. 

Chart 3: Historical December Sector Performance (XLU, XLP, XLV)[1]

Charts 2 and 3 offer insight into how the three best and worst SPDR ETFs have historically performed in December over the last five years. While data constraints only allow us to reference 5 years back for the sector ETFs, the S&P 500 index 20-year December average return is 0.91%. Chart 2 displays the top performers YTD, while chart 3 displays the worst performers YTD.

One visible takeaway is the Santa Claus rally. Each ETF presented closes the year higher than its close on December 25. Further, while not screaming at us, the technology ETF does finish December with the best performance on average.

While history tells us technology tends to outperform, we believe that the magnificent seven will continue outperforming in December due to attempts by portfolio managers across the globe to beat the ever-elusive S&P 500.

2024 Opportunities

As the consumer remains resilient and recession fears fade, Wall Street is taking an optimistic view on the market for the upcoming year. Although S&P 500 2024 year-end target price estimates range anywhere from $4,400 to $5,100 depending on the institution, the consensus is growth.

The average year-end 2024 S&P 500 target price on the street is $4,710, which would translate to 3.3% growth from the current price which is sitting around $4,558. Not only is the price of the S&P 500 index expected to grow, but earnings growth is also on the horizon – led by revenue growth and resilient margins.

2024 earnings per share estimates for the S&P 500 index range from $215-250, but again the average is pointing towards growth. The average S&P 500 earnings per share estimate for 2024 sits at $231.22, or 4.4% growth, when compared to the current trailing 12-month estimate. Overall Wall Street is forecasting bright skies for the market at large for 2024.[5]

Charles Thomas Munger

We are deeply saddened by the passing of Charles Munger, Warren Buffett’s number two in business and his best friend. He was one of the greatest investors of our time.

We would like to leave you with a quote of his:

“Spend each day trying to be a little wiser than you were when you woke up. Day by day, and at the end of the day – if you live long enough – like most people, you will get out of life what you deserve.”

Click here to read last week’s Weekly Wisdom (11/22).

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: Adobe Analytics. As of November 25, 2023.

[2] Source: National Retail Federation. As of November 1, 2023.

[3] Source: Bloomberg. As of November 28, 2023.

[4] Source: Bloomberg. As Of November 28, 2023.

[5] Source: Bloomberg. As Of November 28, 2023.