I know it is early to think about 2024, but… These are not predictions, well refined thoughts, rather initial thoughts. Generally I believe in “strong opinions held loosely”
1 - Interest rates might drop sometime in 2024, resulting in fixed income gains
2 - 2023 saw Magnificent 7 gain enormously, For ex: AMZN up 75%, NVDA 234%, META 184%, Goog - 58% AAPL - 47.7% MSFT - 138%, TSLA - 90% I expect some profit taking in Mag-7 the new year. Could present some opportunities especially early in the year. If you are sitting with these kind of profits, would you be taking some profits?
3 Now 2023 Index gains masked lot of stocks under performing. I am not in the camp of only Mag 7 made money (for ex: homebuilders beat SPY) Some of these under performers might see some life, for ex: declining interest rates might favor REIT’s in 2022 the REIT Index declined by 27%, in 2023 (so far) -2.2%; Some sectors like this could see gains viz-a-viz index (especially if Mag-7 see some pull backs); I think we may be entering from Index investing to stock picking. Remember Mag-7 are trillion $$ market caps’ how much more their market cap can grow? On the other hand they can pull down the index due to their huge market cap.
I have few other themes. I will add as I develop further thoughts on them.
Financials specifically Bank stocks. I have been posting about banks here for sometime. Today’s move reminded how much Bank stocks have declined this year and can move in 2024. I was initially bit concerned that if the economy faces any headwinds it will impact their loan book, requiring higher credit provisions and NII may come down. But valuation should allow some banks to do better. I own Citi, BAC, & WFC on big banks. Of course KRE.
Jim Bianco argues “Bull markets don’t die of old age, but something has to kill them, and interest rate is not going to kill it” At this time, everyone is expecting the markets to go down but it keeps moving up. If the markets keeps moving up then RSP, the SP500 equal weighted index may do better than SPY. How exactly I am going to incorporate this in my trading/ investing is not yet clear to me.
One thought is go short SPY and go long RSP the same $$$ or just go long RSP
I have reduced all and in some accounts sold KRE completely. I have raised my cash to little over 40% and when some of the covered calls get assigned it will go even further up.
Kingran, always enjoy your posts, esp those with self reflections…Are you feeling there is more to gain here? Or is it too late, and we might be catching the top…I am not planning to make anymajor purchases, been there, done that and had learnt my lesson…but it is remarkable to see the run some of these have had, and to note what comments the wall street smarts were passing on stocks like META, GOOG, AMZN etc just a year or so back…you cant make up this stuff! Oh, I did follow you on the Citi covered call for jan 2026, back in 2023 when u mentioned it…It is deep itm, but I am totally fine…I get my dividends, and they can have the shares when they want…or I hold the shares, if it tanks…
The market has rallied strong, but market breadth is very poor. Even in the top 20 SPY stocks, META and NVDA is responsible for 50% of gains. I will sit tight and wait. Powell has clearly indicated the rate cuts are not going to be as soon as the market expects. As the rate cuts are delayed, market will have tantrum and it might present opportunities. Waiting with 40% cash.
Will Fed cut rates given where the markets are? I thought, market will go down and then Fed will cut rates, which will fuel a market rally. The market is strong and Fed has already punted March cut and now some folks are talking about Interest rate hike. hmmm
8.44% in 3 months, while carrying 30%+ cash should make one feel good, but I am not feeling good. Now, if you see the “strong opinions held loosely”, I moved to cash, but when the market kept moving up, I didn’t move back into equities. I did lot of unforced errors like selling META, Citi, BAC, XLI, GLD…
It is easy to say “don’t time the market” but we are driven by our fears and in the name of protecting the gains, we miss out lots of gains.
Nobody knows if today is the start if a downtrend, or yet another dip buying opportunity. The one thing I missed doing last time around was having a watchlist of stocks and their target buy prices…but the solid large caps are so far out of reach that these dips, are literally nothing…Lots of questions but not sure if I have a good answer, regardless of how much I seem to spend time thinking/ “apparent” researching!
I saw your note on buying dips on the banks…is that all you are restricting yourself to? and are you using TA to decide target buy price.
I looked at UNH…But not sure how long it is going to take for this to stabilize, consolidate and then pick up…Might be dead money for 6 months?
And scared to touch HUM despite it being a low that one would like to buy…who knows how much lower this can go?
And yet, have no idea why Cigna is close to ATH…And I distinctly remember painfully how low this was in 2021, and could not hold it going lower and sold!
I have them. Not everything I share here, for ex: I have been trading Gold recently, did multiple trades, an on-going call spread, etc Likewise I trade on some swing names, only stocks I want to hold long-term I generally discuss here.
I still think large banks are great place to be. If the interest rates didn’t come down, and economy holds up, that’s like earning higher NII and lower provisions for loan loss. All the big 3 WFC, BAC and C are going to benefit and of course regionals too.
Similarly, any interest rate cut means small caps will benefit and I expect them to rally. I am not going to be spending time to find individual names instead going with the index. I had a thesis on industrials, instead of trying to find the individual stock I just bought the index, and the index is up 25%. If Index can move like that then you can be very choosy with individual names.
I have some software names, on the list. Just waiting for ex: PAYC, SNOW, etc. at the right time I will talk about them.
JPM, Citi moved the first rate cut from July to November, i.e., the see less probability of a rate cut in July, then it becomes too late to do any rate cut and will have to defer until the election, so as not to appear political.
FED is a prisoner of their choices, they initially choose “inflation is transitory” and held on to that for a long time, and now looking at inflation numbers to do the cut. At some point FED has to decide they are going to be only “reacting” or be pro-active. I think the FED should some bias towards pro-active actions.
If you are seeing the trend of inflation is downwards, don’t necessarily wait for the numbers to get to your level, by then it is late, the same goes for when it goes higher. I know, we don’t want FED to react willy-nilly but “inflation is transitory” is going to live in history books forever.
