Blaise Wyant
January 15, 2024
Financial literacy Monthly commentaryMarket Commentary, January 15 2024
Stock Market Forecasting Art and Science
“It’s difficult to make predictions, especially about the future.”
- a quote often attributed to Baseball Legend Yogi Berra
The Stock Market is not tied to the calendar, but it is only human to look ahead at this time of year and forecast where stock values will be at the year end.
One thing I have learned during my engagement in the world of investing is that nuance trumps dogma. What do I mean by that? Well, let us look at the words.
Merriam-Webster’s dictionary defines them as follows:
Nuance – “Sensibility to, awareness of and ability to express delicate shadings of meaning, feeling or value.”
Dogma- “Something held as established opinion. Point of view put forth as authoritative.”
There are two very well-known market pundits who I have followed for years. Fundstrat’s Equity Strategist Tom Lee and Rosenberg Research Founder David Rosenberg. Ahead of 2023 David Rosenberg was forecasting a poor year for the economy and markets and he was not alone by any stretch. Tom Lee, on the other hand, was an almost lone voice of optimism.
Both gentlemen are well respected and have excellent credentials. I am not picking on David Rosenberg because his was the majority view last year and he had facts to back up his negativity. Why then was the negative view so wrong and what was Tom Lee seeing that gave him optimism?
Tom was more in touch with the nuanced messages the economy and markets were signaling while David was sticking to more dogmatic market views based on the statistics at hand.
Rosenberg had a bleak outlook for the markets in 2023. He declared that there was a close to 100% likelihood of recession. He saw the rapid Fed rate hiking cycle and inverted yield curve (long term rates lower than short term rates) as a sure lead into recession. History would back him up on that view. In his words “there is no get out of jail free card.” – BNN interview November 29,2022
At the same time, looking at the same economic data Tom Lee saw how resilient the US Economy was despite the rate hikes. He saw that inflation was cooling and unemployment was falling. Both items indicated to him that there were better corporate earnings ahead for 2023. Lee came within 1% of accurately forecasting the 2023 S&P index year end level with his target of a 20% gain.
What does Tom Lee see for 2024? In an article from Business Insider, December 28, 2023 he suggests that the year will be solid with a gain for the S&P of about 9 % to a level of 5,200 by year end. His reasoning is that the Federal Reserve will cut rates multiple times later this year. This will ease mortgage rates and revitalize the housing market. In addition, lower inflation will help consumers real income and purchasing power.
Tom also likes smaller cap stocks this year which lagged the gains made by companies like Microsoft, Google, Amazon etc. last year. He expects them to catch up with as much as 50% gains. I am currently screening for the best names in that area.
So, to sum up, making decisions can seem to be straight forward enough when you accept facts as the appear and adhere to dogmatic investment rules but recognizing the nuance in the numbers is key.
When I ask my lovely Bride why she is so quiet and she says “nothing” I could accept that as fact or learn from 33 years of marriage, consider the nuance of her expression, and sit down to talk with her.