Ask Archer: What can we expect from the New Year?
A reader asks: what can we expect from the New Year?
Archer replies: Many people look to the heavens to divine the future, but even the Caesars couldn’t dictate the movement of the stars. So in the fullness of time the Gregorian calendar came to displace the less accurate Julian.
From Wall Street’s point of view the rolling of the calendar allows for a brief reckoning, a modest bit of reflection in a world that usually has little use for self-doubt. And then onward.
So what can we expect in 2024? There will be (and have been) predictions. Many predictions. Some will be right. Some will not. They will be right or wrong to varying degrees. There will be a random distribution of correctness. All this will be fun, but not especially helpful. As always, people will believe what they want to believe.
To that end, here’s a contrarian prediction (not investment advice): this will be the year in which the law of averages reasserts itself, and forecasters get it mostly right. This will not be the result of sudden surge in insight or intelligence, real or artificial. Rather, it will be a kind of reversion to the mean, the law of averages re-asseting itself in a post-Pandemic world.
Jim Grant of Grant’s Interest Rate Observer and a baseball aficionado tells a story of a “journeyman second baseman” who strikes out and comes storming back into the dugout, slamming down his bat and helmet. Stomping about, he passes Hall of Fame Pitcher Bob Gibson who summons him over.
“What’s your lifetime batting average?” asks Gibson.
“Two twenty-five,” answers the second baseman.
Gibson ponders this for a moment then says, “What did you expect?”
So with markets.
There is often an irrational rush to recalibrate expectations as the new year kicks off. Take the views on Apple, for example. Up nearly 50% in 2023 it’s been a dog compared to the rest of the so-called Magnificent Seven, trailing the top performer, NVIDIA, by about 190 percentage points. The iPhone maker was marked down by three major brokerages in the first two weeks of 2024. Hard to say about the phone but when your biggest selling point for your “best in history” offering is the case it’s safe to say that someone is running out of ideas. Will $3k virtual reality goggles pull the company out of its slump? Maybe in the metaverse.
But this re-pricing did set the stage for a contrarian take. On cue, Wamsi Mohan from Bank of America stepped into the fray, slapping a “Buy” on the stock and a $225/share price target. Shares jumped on the news and closed the week ended January 19 at $191.56. They had traded as low as $180 over the previous five days. This completed something of a round trip for the stock, which began December 2023 trading at $191.24. Make of that what you will.
When it comes to prognosticating, everybody can’t be right. Everybody can, however, be wrong. Consensus hugging is probably as good a strategy as any; most years you’re neither too right nor too wrong, and you get to keep your job. As to what the history says about this year here are a few fun facts:
Since 1957, returns following a 20%+ year for the S&P 500 have averaged 9.0%, according to Dow Jones Market Data, slightly below the historical 10% average.
The S&P 500 has been up in about three out of four presidential election years, going back to 1929, according to Dow Jones Market Data. That’s about 75% of the time. On average, the index is up 64.9% of the time, so slightly better odds. The average return in these years has been 6.15%.
Which party wins matters, but not as much as you might think, and election year gains tend to be clustered in the second half (thank you Mark Hulbert, writing in Barron’s).
Damon Runyon, the Broadway Bard, once offered up this punter’s paraphrase of Ecclesiastes: “The race might not always be to the swift nor the battle to the strong, but that’s the way to bet.” (Again, not investment advice.) There are reasons the averages are averages.
Gibson knew that, even if his second baseman did not.
Woof.
(NOTE TO READERS: My new book, Radical Problems, Simple Solutions: How Markets can Help Fix the Retirement Crisis and Solve Wealth Inequality is now out. To purchase a copy and support your local independent bookstore, go to Flyleaf Books.)