Market Outlook - January 2024

Let’s address the elephant in the room with these big mega-cap tech stocks that have been driving the S&P 500 performance over the past year and early into 2024. The meteoric rise for this handful of stocks begs the question of concentration risk and what happens to the “markets” if these stocks begin to wane. From our perspective these stocks certainly have an outsized influence, and could have an impact on a short-term basis, but digging deeper into the data we get a bigger picture, which illustrates longer-term performance trends are suggesting that market breadth has improved in recent months. Most notably since Nov’23, style and size indexes have all posted similar gains versus the large-cap and growth dominated trends we saw for most of last year.

We believe the reindustrialization of North America has become more obvious over the past year and that the market is well supported in 2024. Many of the mega caps benefit from AI tech and they’re getting closer to monetizing this investment, but as often happens when the market latches on to a sexy theme it tends to discount that relatively quickly.  In this case, looking at the mega caps (Alphabet, Amazon, Apple, Meta, Microsoft and Nvidia) their market cap has gone up almost $5 trillion since Nov 2022, for a potential revenue opportunity a decade ahead of about a trillion. Is it really going to be that big or are we underestimating the market potential?

Historically, these forecasts have been on the bullish side. The fact that the markets are broadening out and more stocks/sectors are participating in this rally is really encouraging. From our perspective, we still like the large info tech names, but some of them are overvalued and there’s opportunity in other sectors like REITS, utilities, renewable energy, rail, etc. It’s not that these stocks are better, but the risk reward is currently more attractive.

For a full copy of our January 2024 market commentary, please email us at msbwealth@nbpcd.com