One of my earliest influences in the investment business was Byron Wien, the former Morgan Stanley and Blackstone strategist, who was active in the industry until his passing in October of this year. Mr. Wien was known across Wall Street for his annual list of top surprises. Admittedly, everything on the list probably had a less than 50% chance of occurring. But at this stage of the market cycle for stocks and bonds, has there ever been a better time to account in advance for the unexpected? So, as both an homage to an investing legend, and to provide a handy “what to watch out for that you may not expect” list for 2024, here is my version of the top 10 surprises I’m looking at for the new year.
Surprises versus predictions, and what matters
These are NOT things I expect to happen. That’s why they are called “surprises.” But what Byron Wien did so well is to understand what investors are assuming will likely happen. And with social media all around us, we investors get so many opinions and so quickly. So this is about preparedness, not “making calls” on things, which is way overrated in investing.
I think a good way for investors to start 2024 is to make a resolution: to focus on what matters. Too much attention is given to “that person said this would happen, and it didn’t.” Modern markets are not like they used to be. We don’t have to throw out the old rules, but we do need to be prepared for anything. I call it being “flexible and adaptive.” It is not a formula to make 50% in a year like the one that just ended, but it goes a long way toward meeting my first investment objective for myself: ABL – avoid big loss.
I answered several hundred questions and comments last year, and I find that some investors may be putting too much emphasis on who said what and when, and focusing on a very limited part of the global investment landscape. Markets are so much more fluid than they were in the past. So, for example, predictions about what the S&P 500 will do for the entirety of 2024 means nothing unless you invest year to year.
I am a 59 year old semi-retired guy who has invested professionally for 30 years. I just can’t get enough of following markets, actively investing for my own family, mentoring others and sharing my what I’ve learned from 37 years of experience (the successes and oh the many failures).
To me, investing is not about “picking winners” and forecasting. It is about a cumulative set of decisions one makes, that all goes back to an investment process. I have one, but I don’t expect anyone else to copy it (though they are welcome to). I just want folks to take from it what they think can help them.
It follows that going into 2024 or any other year, the most important thing any investor can do: be aware of not only the obvious, but not so obvious possibilities for what can impact your money. I keep a list I call the Market Outlook Factor Overview (MOFO) which is where some of these ideas come from. But I am writing them here in terms of surprises, rather than on the MOFO, where I simply list the top 10 factors I think are influencing the markets currently.
With that, and a nod to the late great Byron Wien, here are 10 events that are quite possible in 2024 and would surprise investors. So it is better to consider what would happen to your portfolio if they did, rather than think to yourself “that can’t happen.” Because this is investing, where anything can happen!
Top 10 Surprises for 2024
1. The US stock market collapses in January
The bulls are confident, the bears are hibernating after a year where the recession did not arrive. As with each of the 10 items on this list, we have to go back to an old Wall Street saying (paraphrasing): “the market always does what it can to frustrate the most people.” Wouldn’t it just be a freakout if the S&P 500, Nasdaq 100 and small cap stocks fall straight down during January? This is what occurred just 2 years ago, when investors came into 2022 riding high, only to have the market peak on January 4 of that year. 2 years later, it is still below that peak, albeit slightly. A fade in January would be a dangerous “double top” to we technicians.
2. The Magnificent 7 leads spikes higher to start the year, but suddenly rolls over and the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100 index, ends the year down at least 20%.
This is essentially the year 2000 scenario all over again. I’ve mentioned this in recent articles, and I think it is actually a much bigger potential risk than many think. 2023 and 1999 had a lot in common, from a sentiment/speculative/buy every dip standpoint.
3. The US Dollar continues its fade, but then accelerates to the downside, making non-US stocks a “gimme” to beat the S&P 500, for the first time in a while.
Why might this occur and surprise people? Because investors have become so used to the US government kicking the can down the road on spending, if the market finally starts to care more about this than it has in the past, it will hurt the US Dollar’s value further. What’s the “canary in a coal mine” here? 1-month US Treasury bills ended 2023 at a rate of 5.6%. That’s a “tell” to me, and makes this scenario worthy of the surprise list.
4. Inflation comes back, and it’s worse than before
The prevailing market opinion is that inflation is in the rear view mirror, and thus long-term interest rates should continue to plunge in 2024, as they did in late 2023. That’s what they thought in the 1970s. Maybe I’m watching too many last-minute comebacks in sports, but it seems to me that there has been a bit too much victory dancing, including by the Fed. And ironically, the late-2023 stock market and bond price party could renew the old “animal spirits” atmosphere, where investors feel emboldened. And what might that lead to? Higher inflation.
5. The Dow Jones Industrial Average has its highest-ever outperformance of the Nasdaq 100 Index
As I’ve written here a lot recently, I still like the Dow, and think it tells us more about how the “stock market” is doing than the S&P 500, which currently has its highest holdings overlap with the Nasdaq 100 in history (about 45%). The Dow lagged in 2023, and typically lags bull markets. But as the lag effects of those 11 Fed rate cuts continues to bleed into the economy, we could see investors flock to the relative stability in cash flows and business moats that most of the 30 Dow stocks have.
6. Bitcoin ETFs get approved in bunches by the SEC… and Bitcoin promptly falls below 30,000
I’m a fan of the future of the blockchain, and as of this writing, own both a Bitcoin-linked ETF (BITO) and a blockchain ETF (BLOK) in my personal portfolio, through shares and/or call options. But I do not for a minute consider them to be investments just yet. There’s too much Dot-Com era, “can’t go wrong” sentiment around this whole part of the market. So while I’m always happy to buy a good tactical/trading chart as I did with these, I also keep them on a super-short leash. And there is potentially the start of a topping process taking place here. Would this be the first time the “obvious” thing to own going into a year turned out to be one of the worst? Not at all!
7. The “refinancing wall” of corporate bonds shocks the market earlier than expected
The reason some are befuddled by the rally in small caps, but specifically the Russell 2000 small cap index, is because that index is, fundamentally speaking more like small “c_ap” than small cap if you know what I mean (hint: missing letter is “r”). So a spike that recovers just a fraction of the heavy losses in this market segment is great, but at this point seems more like it was part of a manufactured “small cap effect” in that investors pile into small caps near year end. The reasons for have changed over the decades, but things like this and seasonality and other market history tends to be a very powerful force in a 24/7, momentum-driven investing world that we have now. And there is a huge issue for smaller firms that have to refinance a lot of maturing debt just to stay in business. That means that any type of macro force that disrupts sentiment could produce a “buyer’s strike,” just at the wrong time. This would hit small cap companies that are unstable, as well as junk bonds.
8. A significant geopolitical event comes out of nowhere, and it is not one of the current hot spots
It doesn’t come from Ukraine-Russia, funding changes from the US and others for that war or the Israel-Hamas war. It comes from somewhere that the market doesn’t even have on its radar yet. Because that is often how it happens. Not a pandemic, but just as “out of left field” at a time when, as in early 2020, the global stock market was already stretched and vulnerable. I do believe (and we’ll never know for sure) that 2020 would have been a rough year for stocks even if the pandemic did not occur. If anything, the rebound was much stronger than if the economy did not falter and free money was not passed out over and over again. A more natural economic “event” was increasingly being signaled in early 2020, but the reasons stopped mattering when Covid hit.
9. A major bank goes under, and this time government can’t stop the spread
“Major” could be a big regional or even a money center bank, in the US or abroad. We clearly dodged a bullet in March 2023 with the collapse of a few banks, but their rescue was so quick, it was quickly a forgotten issue. So was Bear Stearns, and then Lehman happened. I’m not expecting anything on that level, but unlike many in my field, I am a long way from ruling it out in 2024 or 2025. So many banks still have so much stacked against them, especially if long-term rates move up again.
10. Neither Trump nor Biden ends up being his party’s nominee for President
This is not my idea for a surprise. I absolutely, positively stole it from veteran market guru Doug Kass, who is one of my favorites. He postulated this in his annual surprises list and I instantly said to myself, “yes it would be a shock to the markets, and yes it could happen.” Not will, but could. I hesitated to even “go there” because I never talk politics in this space. But with 2 fellas of the ages of that pair, and some viable second-stringers emerging in each party, wouldn’t that be a twister in 2024?!
So, that’s the list. I’d love to hear yours in the comment section. Most importantly, I hope that the main message of this article: NOT the specifics of the “surprise” list, but the concept of accounting in advance for many possible scenarios, so they don’t surprise you and your money, was helpful to read.
Here’s to a peaceful, prosperous and enjoyable new year!
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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