As we step into 2024, global financial markets have been witnessing a historic rally, with many indices hitting all-time highs. I’m sure you’ve heard someone say the key to investing is “Buy Low, Sell High”. By this logic it makes sense to sell your investments, no? This remarkable achievement prompts a crucial question for investors: Is it still an opportune time to invest?
Key Considerations:
- Historical Trends: Historically, markets reaching new peaks often signal strong economic fundamentals and investor confidence. However, it also raises concerns about overvaluation and potential corrections. For instance, the S&P 500’s average annual return has been around 8% historically, but during peak periods, this can vary significantly.
- Bull Markets: Through history we’ve seen bull markets continue for long periods of time and continue to rise and hit new all time highs. Investors who are waiting on the sidelines for the market to “crash” can end up being out of the market for long periods of time and miss out on significant gains while holding onto cash.
- Investment Strategies: During periods of all-time highs, a common approach is to focus on value investing. This involves looking for stocks or sectors that may have been overlooked in the rally and still offer growth potential. For example, sectors like healthcare and utilities often provide stable returns even during market highs.
- Small Cap vs. Large Cap Performance: Typically, large-cap stocks are considered safer in such times due to their stability and strong fundamentals. Early in market recoveries we can see Large Cap outperform as investors like to put their money into companies they know and are confident in. However, small-cap stocks can offer higher growth potential, albeit with increased volatility.
Insights for Future Investing:
Investing in a market at or near its peak requires a balanced approach, weighing the potential for continued growth against the risk of pullbacks. Diversification across sectors and asset classes remains a prudent strategy. For instance, the right mix of equities, bonds, and alternative investments can help mitigate risk.
What’s been happening in the markets to start 2024?
- Surprising Subscriber Growth:
Netflix has demonstrated remarkable growth in its subscriber base, adding an impressive 13.1 million paid subscribers in Q4. This figure significantly exceeded the initial estimates of 8.8 million, marking a substantial increase. The total number of subscribers now stands at 260 million, indicating a notable 13% growth compared to the previous year (p. 17).
- U.S. Economic Growth Exceeding Expectations:
The U.S. economy continued to surpass expectations in Q4, with the real GDP rising at a 3.3% annualized rate, which was higher than the consensus estimates of 2.0%. This performance underscores the robustness of the U.S. economy in the face of various challenges.
- Significant Milestone in Market Indices:
For the first time, a major market index crossed above the 4,900 mark. It took 757 days to transition from 4,800 to 4,900, marking this as the longest gap between 100-point milestones since the period between March 2000 and May 2013. This milestone reflects the evolving dynamics of the market.
- Tesla’s Revenue and Earnings Report:
Tesla reported Q4 earnings and revenues that missed expectations, leading to a significant 13% drop in its stock value over the week. Notably, its revenue increase of only 3.5% over the past year was the slowest growth rate since Q2 2020, indicating a potential shift in market sentiment towards the company.
- Changes in Real Estate and Technology Investments:
Investor interest in specific sectors has seen notable changes. The Lithium and Battery Technology ETF ($LIT) closed at a 39-month low, down 54% from its peak in November 2021. Additionally, the purchase of single-family homes in the U.S. during the 4th quarter of 2023 decreased by 24% from the previous year and was 48% lower than the levels in Q2 2022. These figures highlight shifts in investor preferences and market conditions.
- Record-Setting Performance by JPMorgan Chase:
JPMorgan Chase achieved a notable feat in 2023, recording a net income of over $49 billion, the highest annual total for any bank in history. This achievement is a testament to the bank’s strong performance and resilience in the financial sector.
As we close the chapter on January 2024, the market landscape presents a mix of historical highs and evolving economic narratives. In this complex and ever-evolving financial environment, our focus remains steadfast on providing strategic insights and balanced perspectives. Whether you’re navigating near-term market fluctuations or planning long-term investment strategies, understanding the underlying factors driving market changes is crucial.
