Happy New Year for Stock Investors???

The new year started with a thud for stock market…that is in stark contrast to the raging bull market we all enjoyed to close out the year. Yet as the S&P 500 (SPY) closes in on the all time highs it does make one take pause and consider the best way forward as the strategies that worked best in 2023 will likely not hold the keys to success in 2024. Get Steve Reitmeister’s game plan for 2024 along with a preview of his top 13 trades below.

2024 is NOT 2023!

A new game plan for stocks is afoot which was very much on display in December and kicked off the new year in the same fashion.

What is that new game plan?

And how to outpace the market from here?

The answers to those questions and more are in this first Reitmeister Total Return commentary of 2024.

Market Commentary

Stocks kept sprinting into the finish line ending the year 4,769 for the S&P 500 (SPY). That is spitting distance from the all-time closing high of 4,796. Meaning we will get there soon enough in the new year.

Interestingly, investors spent the first day of the new year hitting the brakes. That makes perfect sense when you appreciate the non-stop pace of gains the past several weeks. Plus nearing the all time highs is a natural point of resistance leading to a palpable pause.

However, not all stocks were in the red. Instead, a rotation took place. In simplest terms it was OUT with the winners of 2023…and IN with the weakest groups from the past year. The next 2 charts tell this story in stark contrast:

Indeed, last year’s big winners in Technology and Communication Services went from the top of performance chart to the bottom to kick off the year. Conversely the 2023 weaklings like Healthcare, Utilities and Consumer Defensive took a healthy step forward in the new year.

The explanation for this rotation can be easily explained when you appreciate the tax games investors play. For example, investors want to delay the tax ramifications for big profits on their winners by selling at the onset of 2024 instead of the end of 2023. That is why technology took it so hard Tuesday.

Another popular tax season trend is to sell the biggest losers at the end of the year to take the tax loss to offset gains to lower their tax bill. And then those same stocks enjoy the biggest rebound early in the New Year as value seekers buy that dip.

At this stage most everyone is feeling comfortable about the economy, especially with the Fed likely to start lowering rates in the coming year. At this moment the GDPNow model from the Atlanta Fed stands at +2.0% for Q4.

Not too hot to keep inflation aloft. Not too cold to worry anyone about recession.

Now the guessing game begins about WHEN the Fed will make their first rate cut. Very few people expect that at their January 31^st announcement. However, odds go up to nearly 80% likelihood for March 24^th.

I don’t think it matters so much when they first drop rates…but how aggressively. A minor 25 point cut in March barely moves the needle. Given how aggressively they raised rates I would want to see a faster pace of withdrawal…like 50 points to get the party started. Right now, the odds of that in March are only 10% (perhaps that should be a notch higher).

But as the Fed likes to say…they are data dependent. Thus, we all need to keep a watchful eye on these upcoming economic events:

1/3 ISM Manufacturing

1/5 Government Employment (not just jobs added, but also wage inflation)

1/5 ISM Services

1/11 CPI

1/12 PPI

1/25 Q4 GDP + the Feds favorite reading on inflation, PCE

All leading to the 1/31 Fed meeting.

Trading Plan

This is a natural spot for the bull run to take a rest and form a trading range. The top end is around 4,800 given how it correlates with the all time highs. The low end is not that low…maybe 4,650’ish.

The more important element is the ongoing rotation that should take place. Last year’s big winners are played out. Meaning just riding the same ol’ Magnificent 7 bandwagon is not the path to outperformance in 2024.

Instead, it will be the ongoing rotation to smaller stocks (mid caps too). They have a lot of room to play catch up given a nearly 4 year advantage for large caps.

I also like industrials and materials that should benefit from lower rates as they often borrow a lot to run their businesses. So, this lower cost of borrowing should help boost earnings growth and share prices.

I believe the S&P 500 will have modest returns this year. Like high single digits. Maybe 10% tops. Thus, would expect to end the year around 5,200.

Index investors will not be so pleased as it becomes more of a year for stock pickers. And in that environment, I love our odds by leaning into the most attractive groups in the year ahead. Plus, taking full advantage of the benefits of our POWR Rating system I like our odds to fair much, much better in the Reitmeister Total Return portfolio.

Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

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