2024: What Did You Expect?
Neither of my kids got a pony for Christmas. If they had found a pony on Christmas morning, would it have been the best present ever? Yeah. Absolutely. Were they disappointed that they didn't get a pony? Nope.
If, instead, they were, say, oil heiresses and each got a pony as a present, but had hoped for a stable of Arabian horses, would they have been disappointed? Yeah. Absolutely they would have been disappointed.
So, is getting a pony good or bad? Clearly, it depends on expectations.
My kids had no expectation of a pony. I made sure of this. And they had a wonderful holiday. In our oil heiress exercise, they had slightly more achievable expectations of a stable of Arabian horses. In that case ending up with a pony meant disappointment.
Unstable Expectations
What's true for ponies and presents is true for markets. What if earnings grow by 12% this year? Is that good or bad? Good if you expected a drop. It's disappointing if you expected 20% growth. 12% is Wall Street's consensus expectation for earnings growth this year. In the context of investing, whether a thing is good or bad depends on expectations.
Lamplighter has loads of specific expectations for specific companies in the portfolio. It has fewer about the market overall. Here are five for 2024:
The market will probably be up or down more than investors think.
The average US return is 7-8%. The market rarely returns that in any given year. More often it’s up big, like last year, or it's down. It doesn't like to stay too close to its long-run average.
Whether the market is up or down for the year, it will probably be down 10% or more at some point.
That's a thing that happens almost every year. When it happens, investors will probably freak out about it. News will start talking about "the end of the run." Maybe it will be. It's still a long-run opportunity, even if it's a short-term risk.
The things that will matter to the market in 2024 will probably not be the things investors expect.
The things investors expect to matter in 2024 are probably already baked-in. Going into 2023, investors expected interest rate increases to tip the US and Europe into recession. The US came nowhere close to recession. A few European economies did dip, but overall growth surprised. Going into 2024 investors expect the Fed to begin cutting rates. They expect earnings to grow. They expect inflation to come down and employment to remain steady. If everything goes as expected (it won't), the market ought to return a bit more than a government bond.
The market will over-hype AI or crypto or GLP-1s… or something.
The financial market hype machine is unmatched. Hype may be warranted. Last year it was AI. LCM didn't use AI to write this piece, but did use it for editorial feedback and the art! More often, hype is overdone. In 2021 it was Crypto. Maybe it will be Crypto again in 2024. Maybe it will be some bad news. Hopefully not a pandemic. Whatever the hype is will lead to expectations out-of-line with reality.
Other unexpected things will happen.
Fusion power will become a reality and create abundant energy for everyone. Elon Musk will give up tweeting and become just a regular CEO/owner. Investors will pile into old economy stocks like they did in movie theaters and video game retailers. Taylor Swift will join one of the presidential tickets and tip the election. Lots of weird things will happen. Don't get caught up trying to understand the normal, everyday inexplicable things happening in financial markets all the time.
Pony Express
Will the market deliver ponies to investors in 2024? Maybe.
Will ponies be good or bad? It depends.
As you go through 2024 and things happen and prices move, remember to evaluate all this against your own expectations. Ask yourself “did I expect this or is it something truly surprising?” A lot of normal, every-year things that happen in financial markets are packaged to investors as a crisis or a mania. Whether those things are actually worth responding to at all depends on expectations.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.