State of the Market: Earnings season and the Great Re-Weighting
By Happy New Year from all of us at Family Financial Partners! We look forward to a great 2024 together. We ended 2023 with my resolutions for the U.S. economy, and I wanted to start this year with a kind of update on where we stand in the markets and what I’m looking at moving forward.
As expected, the first few days of the year started with everyone selling off the stocks that did so well last year — large-cap tech. We did the exact same thing in our own investment accounts. The reason is simple — any gains from the start of January don’t have to have taxes paid on them until April 2025, and some of these stocks went up 50% or more in 2023.
We had a little market volatility as the great re-weighting of the highest-performing stocks of 2023 made room for new ideas in 2024. But the key thing to realize is that it’s just a rebalance of the world’s portfolios. The resulting rockiness doesn’t speak at all to the growth prospects that these companies have. The employees are still going to work every day to meet their own business and personal goals.
We find ourselves in an interesting period where earnings season kicks off next week, starting with the financial sector. It will be interesting to see if their collective outlook is any rosier for 2024, or if it’s just more of the same for the next 12 months. Right now, expectations are running high that the majority of the value stocks that underperformed in 2023 will bounce back strongly in 2024 as inflation drops and the Fed cuts interest rates. The theory is that lower overall day-to-day business costs will add more profits to the bottom line. That said, keep in mind that while many companies in the various non-tech sectors are currently trading at a discount, it doesn’t mean that those companies’ outlooks have improved. That’s why earnings season is so important. We need to hear an update from the horse’s mouth.
So our investment team will be keyed in over the next month and a half as we get to hear from all of these various companies about their prospects for 2024. Our rebalance on Jan. 2 consisted of realigning the equity-to-bonds ratio (we bought more bonds than in previous years), and we’re carrying a cash position so that if markets do trade lower, we’ll be able to go shopping.
We can never predict how the markets will respond to random world events, whether it’s a federal funding fight, pirates in the Red Sea, or a door blowing off of an airplane. But even if the news gets a little sticky, it doesn’t mean any of these events are truly detrimental to your portfolio. It’s our job to figure out which ones are, and we’re ready for whatever lies ahead.
Note: As the calendar has turned to 2024, it’s that time of the year where all of our advisors are reminding clients to fund their various accounts for 2024. If you have questions on funding amounts, please reach out to us anytime.
Article by David Smyth, CLTC, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.