The Path Behind & The Potential Obstacles Ahead

Jan 30, 2024 | Blog

By: Greg Stewart, CIO

Last year started off with a great deal of pessimism and concern. In my  January 2023 post, I noted investor concerns over recession, inflation, rising interest rates, and war. Everyone seemed to be scared – or at least a bit nervous – and of course, financial markets were not immune. 

Yet, despite how people felt not only at the beginning of the year, but deeply throughout the year, the S&P 500 ended the year up +24%. 

Times of panic are, statistically, the best time to be increasing our exposure to risk assets. Last year saw a great deal of investor pessimism, especially during August, September and October. Yet, we ended the year in a positive position.

Interestingly, almost half of 2023’s gains were garnered during the last two months of the year. The fact that our best returns came out of that short period of time really supports the idea that if we miss the best 10 days of a year in the market, portfolio returns will be significantly impacted to the negative. Of course the other side of the coin is that, if you miss the 10 worst days, your portfolio will experience the opposite, positive effect. 

The door swings both ways. In spite of that understanding, I am not inclined to try being in the market today and out tomorrow – and wouldn’t pretend to aspire to anything that looks like market timing

That said, I do strongly believe there exists a process which examines data with an eye toward harvesting profits at certain points, to not only protect gains against downside, but also to have cash ready for the next time we see panic in the streets. This approach has had a much better long term impact on portfolio returns than attempting to be savant.

Also, even though we know that extreme bearishness statistically produces outsized positive returns does not mean that the market will rally the next day. Sometimes these emotions of pessimism can persist, especially in our world of rapid spread of information, both positive and negative, and unfortunately, accurate, as well as inaccurate. 

The financial industry has many sayings, and one of our favorites is: If you want to get attention, be bearish. If you want to be right, be bullish

As humans, we’re predisposed to pay greater attention to warnings of impending doom than we are to expressions of optimism. Perhaps a holdover from days when our village was under siege and even a small loss meant catastrophe due to scarce resources. 

Unfortunately, our brains haven’t caught up. Even investors who are no longer in “survival mode” will often still seek warning signs and make decisions based on fear.

Statistically, a YouTube video predicting a stock market crash has a far better chance of going viral than one forecasting a 10% gain. Fear, compounded by external noise, can drive people to make impulsive, and expensive decisions. Even investment professionals are not immune. Despite the rumors, we are not heartless, emotionless robots (well not completely anyway). 

Even artificial intelligence (created by humans) does not escape this natural human tendency. There have been multiple attempts to use programming, algorithms, and AI to make market selections in ETFs, with the goal of removing that human element. To date, these have not necessarily improved on human performance. 

With That Backdrop… A Quick Look at The Year Ahead…

I’ll start by pointing out that back-to-back 20%+ years are rare. Actually such periods are incredibly uncommon, with the S&P 500 only having sequential 20%+ years just 9 times in 95 years. 

Sequential 20%+ years haven’t happened since 1999 – my entire career sadly! Perhaps the markets are more efficient now… or maybe we’re due (a guy can hope). 

But, since “hope” is not a strategy, here’s what I’m watching as we enter 2024:

Election Year

As I’ve written previously, markets typically do fairly well at the beginning of an election year, perhaps the first 4 to 5 months. Then uncertainty about the balance of power kicks in. Who is going to be in the White House? Who will control the Senate? With that, the market tends to take a bit of a break. 

Once the decisions are made – regardless of what decision is made – the markets move past nervousness and get back to work. 

Of course, there’s far more to a market than the presidential cycle, despite how heavily political parties like to lean on this as a talking point. 

Interest Rates

Interest rates have started to come down from their 2023 peak and are predicted by many to be dropping more throughout the year. In the 1980s, and again in the late 1990s, interest rate declines powered significant growth. 

However, this time rates don’t have as far to fall. We’re not coming down from 19% like we did in the 1980s. Falling rates are often great for the market, but the impact is likely to be adjusted for the actual magnitude of that fall. 

When you factor inflation into the interest rate decline in 2023, it’s actually been much more rapid than it may appear on the surface. Declines in real, inflation-adjusted interest rates are supportive of a rally in risk assets, as these are likely to offer better return potential than bonds. The trade-off between the two starts to make equities more attractive to investors, emboldening what they’re willing to pay. 

Also, inflation numbers, in spite of a slight tick up, seem to be stabilizing. 

Some employees in the technology and other industries are experiencing layoffs. Even so, with job openings, confidence among those people leaving their jobs to be able to seek other opportunities, and more, unemployment remains very, very low. 


The story behind the outsized growth in the late 1990s was a technology revolution. Today’s generative AI is a revolution as well, but exactly how much of a revolution is still unknown, and will be interesting to watch. 

If it does come to fruition, it’s unlikely to be quite as dramatic as the one experienced in the 1990s, and therefore, market returns will adjust to the level of drama. 

Technology stocks currently make up a huge percentage of the S&P 500, almost 40% now. The industry clearly wields an influence on what happens this year, at least in that particular index. 

What’s interesting about 2023 is that the largest technology stocks – Apple, Microsoft, Google, Amazon, Nvidia, Tesla, Meta (Facebook), accounted for about 20% of the year’s 24.23% return. If you break it down into quarters, tech accounted for 100% of the first quarter’s return, 73% of the second quarter, and even less in the last two quarters. This is positive, as it’s best not to have all the gain concentrated in just a few stocks. 

Ending 2023 with more stocks participating in growth indicates a rising tide. That should be impactful in 2024. 


Barring some exogenous shock, with interest rates coming down (although perhaps not as far as the market has hoped), we may see key economic indicators such as housing and vehicle demand rise. Lower cost of capital for businesses means that there may be more investment in growth. 

If you look at the rhyme of the last few years, interest rates were hugely impactful. In 2022, interest rates came up a lot, and it really was a terrible year. In the first part of 2023, when things were somewhat stable, the market did okay. In the third quarter, interest rates jacked up and the market got pounded. In the fourth quarter, with expectations of cuts, we saw a rally. 

Most importantly…

Paying attention to each variable and then determining how, and whether, they will – or will not – impact markets, investors, and more, allows us the ability to make thoughtful decisions to reduce risk, increase growth, and protect everything you’ve worked so hard to earn. 


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