The last blog post on October 26th discussed how sentiment was so gloomy that a market turn was a high probability, and one day later we bottomed and proceeded to rally 15%+ through year end. After a strong finish to the year, now what?
Sentiment has always played a big role in the market, but more so now than ever. Maybe its the constant news feeds, social media posts or just the fact that markets are viewed as a giant video game in todays world, but whatever it is the behavioral finance aspect of investing is just fascinating to watch now.
I guess its just the reality of our times but it simply pays to watch what the prevailing sentiment is and when at it’s extreme, just do the opposite.
So what is the outlook for 2024?
As someone that has studied markets for 25 years, there just isn’t a reliable way to predict how things could turn out 12 months from now (don’t even give me the extrapolation of S&P earnings multiplied by standard PE ratio!). Anyone on the TV trying to predict 2024 outcome is simply providing financial entertainment, they really have no clue. However looking at a shorter time period, and taking into account current sentiment (pretty bullish now), it would not surprise me to see the markets peak in the next few weeks and have a sharp correction. In fact, I’d guess we need to see the entire run from the past few months wiped out and then some to reset current bullish sentiment and inject enough fear into the markets to put in a decent market bottom. This in no way reflects on what the year end performance will be, but like last October the sentiment is getting closer to an extreme here.
Honestly, I’d say a 20% decline would not be out of the question, but that is simply a possibility I see and like the October post, you will have to determine the probability.
As for my clients, we will be starting to book some profits in early 2024 and tighten up our sell stops on everything else. If I’m right then we sit in cash and wait out a good entry later in the year, if I’m wrong we flip back in. To me the first half of 2024 will be the year that it’s better to be safe than digging yourself out of a big hole.
Although Election years tend to skew positive in the markets, this one could be crazy. Buckle up.
*(these are my views only and not intended as general investment advice – due your own due diligence)