Happy Friday!
The New Year brings an end to the incredible 9 consecutive week winning streak. Earnings for the S&P 500 are expected to grow in 2024. Private companies are in a race to the moon and a 16-year-old is a dart throwing phenom.
#1 – Weekly Market Recap – The stock market got off to a slow start in 2024, declining the first three trading days of the new year after an impressive 9 consecutive weeks of gains to close out 2023.
Through Thursday, the Dow Jones Industrial Average was down a modest -0.7%, while the S&P 500 and NASDAQ declined -1.7% and -3.2% respectively. Early Friday trading appears to be positive following fresh data showing continued resiliency from the US labor market, but the S&P 500 would need a herculean effort to claw back to positive this week.
This week’s results appear to be reflective of a relatively common early-January trading pattern where the previous year’s ‘laggards’ outperform and the previous year’s ‘leaders’ cede ground. The table below illustrates this pattern – sectors that struggled last year such as Health Care, Utilities, Energy, and Consumer Staples are now leading the way, while sectors that saw strong 2023 returns like Information Technology and Consumer Discretionary are lagging broader indices.
While the first week of 2024 has centered around leaders vs. laggards, investors’ attention will likely soon shift to corporate earnings; fourth-quarter earnings season unofficially kicks off next Friday when several of the big banks report earnings.
#2 – Streak Ends – The S&P 500’s extraordinary streak of nine consecutive weeks appears to be coming to an end this week (barring a furious Friday rally), falling short of surpassing its previous all-time high of 4,796 set on January 2nd, 2022.
This nine-week streak, a rare occurrence happening only 12 times in the past 100 years, began after the Federal Reserve’s decision to halt interest rate hikes during its November 1st meeting. In response, the index surged by an impressive +13.2%, settling at 4,750, just 1% away from its historical peak.
As mentioned in our previous Friday 5, following a 9-week stretch of gains in the S&P, historical data shows a 75% probability of positive outcomes one year later, accompanied by an average return of +5%.
While the streak appears to be ending, the impressive run certainly provides interesting contextual comparisons for investors. Historical parallels in election years, specifically in 1964 and 2004, where similar streaks saw future positive returns, offer some clues for the current market environment in 2024. Yet, the path forward remains unpredictable. The end of the streak serves as a reminder of the market’s fluidity, where historical data can guide but cannot dictate future performance.
Source: DSG Advisors (1/4/2024)
#3 – 2024 Earnings Estimates & Valuations – As investors enter the new year, we believe an understanding of current consensus expectations provides valuable context as the investment landscape inevitably evolves over 2024.
As we wrote two weeks ago, stock prices increase due to three factors: (1) earnings growth, (2) multiple expansion/valuation, and (3) dividend payments. (Picturesque Parks & Price Peaks)
Knowing this, we’ve collated the prices and Wall Street expectations on these three factors to illustrate the setup for 2024.
1) Earnings Growth – Earnings for the S&P 500 are expected to grow a healthy 12.2% over the next 12 months.
This is in the top third of readings over the last decade, implying that earnings growth is expected to be higher than average. All 11 sectors are estimated to expand earnings; analysts are expecting the highest earnings growth from Technology (23.1%), Health Care (18.2%), and Communication Services (16.6%), while Materials (2.5%) and Energy (1.3%) expected to see the lowest earnings growth.
Note: We’ve used a ‘box and whisker’ plot to display the last 10 years of expected EPS growth for each sector. The blue diamonds are the current value; the green boxes are the 75th and 25th percentile of estimated EPS growth rates; the lines extending from the green boxes the maximum and minimum growth rates (adjusted to remove outliers).
2) Valuations – The S&P 500 is currently trading at a P/E ratio of 19.4x versus the historical average of 16x. While not extreme, valuations do appear to be elevated. Information Technology (25.7x) and Consumer Discretionary (23.6x) have the most expensive multiples, while Financials (14.7x) and Energy (11.1x) have the cheapest multiples.
Note: We’ve used a ‘box and whisker’ plot to display the last 10 years of P/E Ratios for each sector. The blue diamonds are the current value; the green boxes are the 75th and 25th percentile of P/E Ratios; the lines extending from the green boxes the maximum and minimum P/E Ratios (adjusted to remove outliers).
3) Dividend Yield – The S&P 500 is expected to return 1.5% to investors through dividends in 2024. This is lower than the 10-year average of 1.9%, but higher than the sub-1.4% seen in late 2021.
Knowing this, it appears investors are expecting 2024 returns for the S&P 500 could be driven by stronger-than-average earnings growth but limited by elevated valuations and a lower-than-average dividend yield. We believe that this is a plausible outcome as long as the US labor market remains strong and inflation doesn’t reaccelerate. This morning’s jobs report showed that the US economy continued to add jobs at a healthy pace in December – an encouraging signal heading into 2024.
#4 – Space Race – NASA is attempting to kick-start commercial moon deliveries to support an eventual astronaut return to the moon. Two private US companies are vying to be the first to complete a moon landing since the Apollo missions over 50 years ago.
The two companies, Astrobotic Technology and Intuitive Machines are part of a NASA-supported effort focused on getting astronauts back to the moon. There are fourteen companies currently under contract with NASA. “They’re scouts going to the moon ahead of us,” said NASA Administrator Bill Nelson.
While the United States is the only country to put astronauts on the moon, there hasn’t been an attempted moon landing since December 1972, when Apollo 17’s Gene Cernan and Harrison Schmitt last walked on the gray, dusty surface. The allure of travel to the moon faded, while exploring the further reaches of space beckoned and the space race between the US and the Soviet Union came to a close.
Pittsburgh’s Astrobotic Technology is up first with a lunar lander being launched Monday, January 8th aboard a brand-new rocket and Houston’s Intuitive Machines is looking to launch their lander aboard a SpaceX rocket in mid-February.
Landing on the moon is no easy feat. There is virtually no atmosphere to slow a landing spacecraft and therefore parachutes don’t work. Landers must rely on thrusters to gently descend to the moon’s surface while navigating past treacherous cliffs and craters.
China has had 3 successful lunar landings in the past decade and this past summer India also managed a successful landing, while Russia, Japan and Israel have each ended up with crash landings.
Rocket delays have already stalled each company mission, it remains to be seen which company winds up there first. “It’s going to be a wild, wild ride,” promised Astrobotic’s CEO John Thornton.
#5 – Bulls Eye – A 16-year-old from England is aiming to become the youngest ever winner of the PDC World Darts Championship, the sport’s premier tournament.
Luke Littler will compete next week in the tournament final against the world’s number one player and fellow Brit for the £500,000 ($634,236) winner’s purse.
It’s been a Cinderella story for Littler who knocked out a five-time world-champion and beat the 2018 world champion in the semis in order to notch a spot in the finals. Coming into the world championship, Littler was ranked 164th by the Professional Darts Corporation (PDC) the governing body of the tournament.
On the day of the final, Littler will do what he’s done prior to each match. “In the morning, go for a ham and cheese omelet, then come here have my pizza and then [practice] on the board. That’s what I’ve done every day,” Littler said.
If Littler is victorious, he will be the youngest ever winner of the World Darts Championship. In 2014 a 24- year-old won the title and holds the title of the youngest winner to date.
If Littler doesn’t come away with the victory, he’ll go home with £200,000 ($253,748), not too shabby for a high schooler!
Have a great weekend!
Denver & the DSGCA Team