The last trading day of the year is behind us. It’s time to relax, get ready to ring in the new year, reflect on stock market action, and set your investment goals for 2024.
2023 was a particularly difficult one for investors. In the early part of the year, investors feared a recession in light of high interest rates, inflation was a huge concern, and we went through a regional banking crisis. The way things were unfolding caused concern, especially with the Middle East conflict, but things changed in the last quarter, and the year ended on a positive note.
Interest Rates
After reaching levels not seen since 2007, Treasury yields fell by around one percentage point. This helped the out-of-favor bond market, which finally showed signs of life. The weekly chart of the iShares 20+ Year Treasury Bond (TLT) below shows that bonds still have to move higher before confirming an uptrend. A break above its first resistance level at the 105.50 level, TLT’s previous high, would be a more confirming signal. Yet, it’s encouraging that the iShares 20+ Year Treasury Bond (TLT) is trading above its 50-week simple moving average (SMA).
CHART 1. WEEKLY CHART OF TLT. Bond prices benefited from declining Treasury yields. Even though TLT is trading above its 50-week simple moving average, a break above 105.50 would confirm an uptrend. Chart source: StockCharts.com. For educational purposes.
In the last Fed meeting, Chairman Jerome Powell indicated that rate cuts could occur before inflation hit the 2% target. That was enough to send investors flocking to equities, especially in the AI space. Investors are confident that a handful of mega-cap tech stocks would make great strides in AI technology. These stocks, known affectionately as the Magnificent Seven, were responsible for most stock market gains.
The stock market ended the year with a bang, with the Dow Jones Industrial Average ($INDU) rising 13.7% for the year, the S&P 500 ($SPX) up 24%, and the Nasdaq Composite up 43.6% (see daily chart below), the clear winner of the three broad indices.
CHART 2. DAILY CHART OF NASDAQ COMPOSITE. AI euphoria resulted in a stellar rally in the Nasdaq Composite, making it the biggest gainer of the three broad indices. Chart source: StockCharts.com. For educational purposes.
Given all the positive data, the stock market is positioned to continue moving higher in 2024. The Santa Claus Rally is on track, and which would mean a year-end boost. Earnings and revenue expectations are high, and the market has priced in interest rate cuts. Yet there are other segments of the stock market that investors may be able to gain from in 2024.
Trading the World
Next year is a record year of elections, and over half of the world’s population will be heading to the polls. This serves as a reminder that investors could benefit from international stocks. So far, emerging markets outside of China have picked up, as seen in the chart of iShares MSCI Emerging Markets ex China ETF (EMXC) below. After trending lower for most of 2022 and then trending sideways for most of 2023, emerging markets are starting to break out of a trading range. Their price action is similar to US small-cap stocks, another area you should watch in 2024.
CHART 3. DAILY CHART OF ISHARES MSCI EMERGING MARKETS EX CHINA ETF. Emerging markets have struggled in 2023, but they are breaking out of their trading range. Chart source: StockCharts.com. For educational purposes.
Three countries that have seen a strong 2023 are India, Japan, and Mexico. These three markets could continue moving higher, but if some other emerging markets start showing signs of catching up to these three, you could find some good values here.
If you will be investing outside of the US, closely follow the US dollar. Although the US dollar has weakened, it’s still relatively high. A weakening dollar is an indication of loosening financial conditions, but it also benefits developing countries. The bigger question would be if the US dollar holds on to or falls below its 200-day SMA.
Bitcoin
Bitcoin prices fell drastically in 2022. After reaching a high of 69,355 in October 2021, it fell to a low of 14,925 in November 2022. Higher interest rates, the Sam Bankman-Fried incident, the collapse of FTX, and regulatory crackdowns hurt the cryptocurrency’s price. Since then, Bitcoin has soared, reaching a 52-week high of 45,260. Some of that move may have to do with the possible regulatory approval of spot Bitcoin ETFs, which would open the door for a larger investment pool.
Based on the weekly chart of Bitcoin to US dollar ($BTCUSD) below, the cryptocurrency can rise further. After breaking above $30,000, there was no turning back until it hit its 52-week high of $45,260. The cryptocurrency is now stalling, forming a pennant formation.
CHART 4. WEEKLY CHART OF BITCOIN TO US DOLLAR. A break above the pennant formation could take $BTCUSD to its all-time high of $69,355.
A breakout above the pennant formation could see Bitcoin move 42.6% higher, the length of the flagpole. This would mean a rise to $61,275, close to its all-time high. If it continues higher, there’s a chance Bitcoin hit a new all-time high. Of course, things could go in the other direction; Bitcoin could break below its pennant formation and go down to the $30,000 level or lower.
The Bottom Line
AI growth, emerging markets, and Bitcoin are three areas to watch in 2024. As 2023 winds up and before you ring in the new year, it may be a good idea to set your investment goals for 2024. Create ChartLists of the different areas to watch, i.e., mega-cap tech, small caps, bonds, emerging markets, and Bitcoin, and be ready to sell assets that aren’t performing well and add those that can sizzle your portfolio.
As small caps and emerging markets (besides China) break out of their trading range and interest rates fall, Financials and other small caps will probably do well in 2024, as will bonds and emerging markets. A lot depends on how worldwide elections play out. Geopolitical tensions could flare up, which could have an impact on supply chains and trade restrictions. This could introduce volatility in equities, which is why it’s good to add an uncorrelated asset class such as Bitcoin or gold to your portfolio. It’s always good to have a healthy balance of different asset groups.
If there’s one word that encapsulates your investment strategy for 2024, it would be diversification. And last but not least, make it a point to go over last year’s trading resolutions.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.