Happy Friday!
Stocks start 2024 relatively flat with mixed inflation data. DSG Advisors is “Cautiously Optimistic” for 2024 with a S&P 500 year-end target of 5,050. Two rare occurrences: the SEC approves Bitcoin ETFs and a mammoth tusk discovered in North Dakota. The end of the football season amidst several coaching “firements”.
#1 – Weekly Market Recap – The second trading week of the year brought continued gains for stocks. Through Thursday, the Dow Jones Industrial Average rose a modest +0.7% while the S&P 500 increased +1.8% and the NASDAQ continued its climb rising +3.2%. Stocks look to end the week relatively flat as Q4 earnings season unofficially started this morning with banks reporting mixed results.
December’s consumer inflation report brought a subtle but significant reminder of the challenges confronting consumers. Despite a year that witnessed a nearly 50% decrease in consumer inflation, prices still rose +3.4% compared to last year. This was a slight increase from November’s +3.1% rise. Although December’s producer inflation gauge was slightly lower than anticipated, consumer inflation appears undesirably stubborn.
Given the mixed inflation data, the Federal Reserve is expected to maintain steady interest rates during its upcoming Jan. 30-31 meeting.
As markets anticipate interest rate cuts in the coming months, future inflation reports will take on outsized significance in shaping the Federal Reserve’s interest rate policy.
#2 – 2024 Outlook – After returning approximately 26% in 2023, investors are wondering how S&P 500 stocks will perform in 2024. Currently, the S&P 500 is up just +0.2% in the new year, slightly below the all-time highs set in January of 2022.
At DSG Advisors, we would label our outlook for the new year as “cautious optimism.” We are cautious because of analysts robust 12.2% earnings growth expectations and current P/E multiples of 19.7x forward earnings.
We are optimistic, however, because employment remains strong and as shown in the chart below from Strategas, over the last 13 presidential elections where an incumbent is running for re-election, the S&P 500 has never been negative. In fact, you need to go all the way back to 1940 to have negative performance in a presidential re-election year.
Source: Strategas (1/8/2024)
At DSG Advisors, we anticipate that 2024 will provide modestly positive returns. Our year-end target for the S&P 500 Index is 5,050 – approximately +5.5% higher from the current 4,780 level.
While our year-end forecast calls for modestly positive returns, we believe that there could be periods of choppiness. A number of ‘crosswinds’ remain at the forefront of investors’ minds including inflation, jobs growth, AI developments, fiscal deficits, oil prices, geopolitical tensions and the presidential election. Despite these concerns, we think it is possible for stocks to continue to climb a “wall of worry” and end the year slightly higher than where we started.
#3 – SEC Approves Bitcoin ETFs – The U.S. Securities and Exchange Commission (SEC) made groundbreaking news Wednesday by approving the creation of Bitcoin exchange-traded funds (ETFs). The approval was much anticipated, and somewhat expected, after a false tweet Tuesday on the SEC’s X (Twitter) account was posted claiming that the agency had already approved the ETF’s. The SEC later clarified the account had been hacked.
The SEC gave the green light to 11 major financial players to trade Bitcoin ETF’s, with Grayscale and BlackRock headlining the group. The approval comes after a long history of SEC rejections over the years due to concerns of market manipulation…the SEC previously denied more than 30 similar applications.
The approval makes it easier for investors to include Bitcoin into their portfolios and gain exposure to the cryptocurrency without directly holding the coin. The approval of Bitcoin ETFs also creates a new asset class — something we haven’t seen for portfolio allocation in a long time.
Larger institutions waiting for an easier way to access the asset class without buying Bitcoin directly can now start to add it to investment funds. But many institutions will continue to have limits on how much of an account can be allocated to Bitcoin.
With the SEC approval, it is anticipated that Bitcoin ETFs will bring increased distribution of Bitcoin in the US and increase the availability of crypto currencies, likely leading to Bitcoin appearing in more portfolios.
#4 – Ice Age – Miners in North Dakota unearthed more than coal last spring – they discovered something special, a mammoth tusk that had been buried for thousands of years.
The 7-foot-long, 50-pound tusk was unearthed from an old streambed, about 40 feet deep, at the Freedom Mine near Beulah, North Dakota. The 45,000 acre surface mine produces up to 16 million tons of lignite coal per year.
A glimpse of the whitish mammoth tusk was first spotted by a shovel operator working the overnight shift as he scooped up a giant mound of dirt dropping it into a dump truck. After the load was dumped, the bulldozer driver that was flattening the dirt, stopped to take a closer look at the white object. That’s when they discovered they had uncovered an ancient remain, they stopped digging and called in experts.
Jeff Person, a paleontologist with the North Dakota Geologic Survey, was the first to respond. He estimated the tusk to be 10,000 to 100,000 years old. Subsequent digs at the site uncovered more than 20 bones, which Person described as a “trickle of finds,” but likely to be the most complete mammoth found in North Dakota.
Mammoths were larger than elephants today and covered in thick wool. According to the Geologic Survey, mammoths once roamed across parts of Africa, Asia, Europe and North America and went extinct about 10,000 years ago in what is now referred to as North Dakota.
The discovery in North Dakota is rare as many remains of animals alive during the last Ice Age were destroyed by glaciations and movements of ice sheets perhaps 400 feet thick, covering about three -fourths of the state.
Paul Ullman, a University of North Dakota vertebrate paleontologist, called mammoths “media superstars almost as much as dinosaurs,” citing the “Ice Age” film franchise.
The mining company plans to donate the bones to the state for educational purposes.
#5 – Coaching Firements – To say it’s been a newsworthy week in the world of football is an understatement.
On Monday, the Michigan Wolverines, led by coach Jim Harbaugh, beat the Washington Huskies to win the 2024 CFP National Championship and become just the sixth team in college football history to go 15-0 or better in season.
The victory was sweet for Big Ten fans as the SEC has had a juggernaut on the ultimate prize for the last 8 years – a Big Ten team hadn’t won the National Championship since Ohio State in 2014.
Then came Wednesday, and retirements and firings (“firements,” as we’ve coined it”) led the news.
Nick Saban, the head coach of the University of Alabama, announced his retirement after a historic 17 seasons and six national tiles with the Crimson Tide. “Simply put, Nick Saban is one of the greatest coaches of all time, in any sport and The University of Alabama is fortunate to have had him leading our football program or the past 17 seasons,” said Alabama athletic director Greg Byrne. “He is the consummate coach, mentor and leader, and his impact is felt far beyond the football field.” Saban’s career ends with seven national championships, including one with LSU. No other coach has won more in the history of college football.
After 14 seasons, 10 playoff appearances and the franchise’s one Super Bowl championship, Pete Carroll is out as the Seattle Seahawks’ coach. “Pete is the winningest coach in Seahawks history, brought the city its first Super Bowl title, and created a tremendous impact over the past 14 years on the field and in the community,” team owner Jody Allen said. Prior to his tenure at the Seahawks, Pete Carroll spent nine years as head coach at University of Southern California, leading the Trojans to two National Championships. Carroll is just one of three coaches, along with Jimmy Johnson and Barry Switzer, to win both a college national championship and a Super Bowl.
Yesterday, it was confirmed that the New England Patriots and Coach Bill Belichick will part ways, ending a tenure that lasted nearly a quarter of a century. Belichick’s New England teams, including 20 years with legendary QB Tom Brady, made it to nine Super Bowls, winning six championships. “I’m incredibly grateful to have played for the best coach in the history of the NFL,” in a message Brady posted.
Each of these legendary coaches dominated football at their respective levels for decades. It’s the end of an era…those are going to be some big shoes to fill!
Have a great weekend!
Denver & the DSGCA Team