You know all the reasons the stock market’s bull run shouldn’t continue. But it will. Its 2024 extension will likely not be as strong as its run in 2023, but will be noteworthy nonetheless. Let me explain why.
First, a simple and and seldom appreciated fact is that if a new bull market hits its first anniversary – as the S&P 500 did in October – it almost always gets another. Almost without exception. They’re just harder to kill than almost anyone fathoms. And that run will come on the TSX, too, despite all the negatives commonly bandied about, including Canada’s third-quarter GDP contraction and lagging markets.
Hence, my 2024 forecast: Double-digit gains for both the S&P 500 and the MSCI World Index, with tech and big growth stocks leading early on, while the TSX lags. But expect a likely midyear shift to value stocks – those which appear underpriced – propelling gains on the TSX to outpace the other indexes. Accelerating economic resilience and political tailwinds pave the way for a good-to-great year.
First, a report card: My 2023 forecast called for a global bull market, hot inflation cooling, no recession and Tech and other growth sectors leading. That happened, obviously. While Canada’s tilt to value stocks restrained the TSX behind both U.S. and world stocks, it still rose 9.8 per cent through mid-December. Recession? No! Despite ubiquitous fears, global GDP grew. U.S. GDP accelerated, surging by an annualized 5.2 per cent in the third quarter. While Canadian third-quarter GDP declined modestly, that was owing mostly to falling volatile exports, such as gems, fuels, aluminum and ores.
Other global weak spots (such as Germany) were exceptions. In much of the world, predictions of economic doom declined. Most now mischaracterize the resilience in the economy as a “soft landing.” It isn’t a “landing” if there was never a descent. Inflation cooled big-time globally, as I said it would on Nov. 24, 2022. Canadian CPI now hovers around 3 per cent year-over-year.
Politics turbocharged U.S. stocks’ 2023 rise, as the U.S. midterm elections in late 2022 super-cemented legislative gridlock. The effects that had on markets I detailed previously. Politics continues as a 2024 tailwind, too.
With a Canadian federal election potentially as far away as October, 2025, chatter is too distant to sway stocks much. But 2024 is a U.S. presidential election year, and despite the requisite histrionics that election years see, they are strong for stocks. We’ll always get a winner we like better than initially feared. Since reliable data starting in 1925, U.S. stocks climbed in 83.3 per cent of them – averaging 11.4-per-cent gains. When the second year of a president’s term has been negative, as it was in 2022, their fourth year was positive every single time since the Great Depression’s 1932 bottom. It’s the continued gridlock gold and declining fear I detailed last year.
U.S. election year positivity in the markets is felt globally – including Canada – thanks to tightly correlated developed stock markets. The TSX-to-S&P 500 correlation is 0.81 – strong, considering 1.00 means identical movement and -1.00 the opposite. Hence, Canadian stocks rose in 76.9 per cent of US election years since creation.
On average, U.S. presidential years get most of their return in their final four months with sideways wiggles earlier in the year as myriad candidates’ claims create uncertainty. Mudslinging stokes fears about the “wrong” candidate winning. But a few big down spikes skew that front half average downward.
Normally Republicans are seen as pro-business and Democrats as pro-regulation and redistribution. Most all down first halves of election years were with Republican presidents who looked likely to lose. Obviously, that’s not now. Democrat presidents’ first halves have been more steady, averaging 6.4 per cent with the second halves returning 7.1 per cent. Still, short-term volatility can happen at any time for any reason – or none – as it did when the S&P 500 fell 10 per cent briefly this fall before rebounding to new 2023 bull market highs.
The economy? Endless fretting means any weakness in Canadian markets is already priced in. The TSX’s solid 2023 rise reflects that, as does Germany’s record-high DAX. Elsewhere, mild, accelerating growth continues, which is great for stocks. Pockets of weakness always occur globally, but none are sufficiently big and shocking to stop global growth. Price pressures should keep easing for reasons I detailed before.
Big growth stocks should continue leading early on. Canada, as you know, is weak there. But as the accelerating nature of GDP globally becomes apparent and short-term interest rates start falling, steepening the global yield curve, value stocks should start taking over leadership.
The yield curve steepening makes bank lending more profitable, hence loosening lenders’ purse strings, which mostly helps value firms as their weaker balance sheets and more volatile earnings flows are more loan-dependent. Value stocks get the benefit of that marginal lending increase, always. So, if I’m right, Canada’s energy, materials and banks sectors should get hot in the back half of 2024. Europe’s too. Crucially, though – and contrary to popular belief – rate cuts aren’t needed to keep this bull market rolling, as stocks’ rise since October 2022′s low reveals!
Well-known, prepriced worries can’t kill this young bull market. That would take a big, stealthy shock. I see none lurking now. Stay bullish – but nimble – in 2024.
Ken Fisher is the founder, executive chairman and co-chief investment officer of Fisher Investments.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.