As we step into 2024, we’re looking back at market trends and dynamics in 2022 and 2023 to determine what we expect to happen over the next year.
This year, our focus is on navigating through the complexities of the global investment landscape, with a spotlight on Metals, Oil, and Interest Rates. The insights shared in this outlook are rooted in our commitment to providing deep, actionable analysis for savvy investors looking to stay ahead of the curve.
In 2022, we experienced rising inflation and the disappointing performance of gold and silver. Still, we maintained our belief that metals and commodity prices were in the early stages of a secular Bull Market.
With 2023’s cooling inflation rates, rising geopolitical fears (Ukraine, China/Taiwan, Israel/Palestine, etc.), the Federal Reserve’s massive interest rate hikes, and dramatic currency fluctuations, we had the makings for the metals markets to stop being a disappointment for investors.
As we enter 2024, investors who withstand the short-term volatility associated with commodity prices may find metals as a potential growth vehicle in the first half of 2024.
Here's our chart from October 2023:
Here's an updated chart with our most recent thoughts as of December 12th, 2023:
The bottom line: assuming GLD prices pivot upward in the next few days to weeks, we may be witnessing a breakout higher in metal prices that could carry into the first half of 2024. This could make metals like gold & silver and gold miners part of our Next Investment Wave for 2024.
By January 2023, Oil prices had declined more than 25% from their June 2022 highs. Our Next Wave newsletter went against the grain by highlighting the Oil and Energy markets as a potential growth play over the next few years. We wrote:
"The recent crude price decline reflects a tug-of-war underway between bullish structural factors and bearish temporary factors, causing us to ask: “Is this a buying opportunity within a longer-term structural bull market or the beginning of significantly lower oil prices led by reduction of demand as a result of a looming recession?”
We highlighted Wall Street’s bullish outlook, China’s expected post-pandemic economic comeback, and more—which you can read here: Oil and Gas
As we enter 2024, the oil fundamentals we discussed last seem to be intact—maybe more so now that we are entering an election year and China has had more time to work through its economic issues.
Assuming we don’t experience a black swan event or transition into a deep recession, the fundamentals and technicals surrounding energy markets seem to support upward price pressure in Oil prices through 2024.
What Oil bulls need to see happen next is a series of higher lows in the charts:
The bottom line: Factors we highlighted in January 2023 surrounding the Oil and Energy markets seem to be more relevant in 2024. While the 2023 price action in WTI Light Crude for Oil bulls was encouraging and frustrating at the same time, we believe patience will be rewarded if prices remain above the noted levels on the charts.
After year-over-year interest rate declines since the mid-1980s, the dramatic shift in the ten-year U.S. treasury yield seems to signify the end of an era of low rates.
As you can see below, rates pivoted upward in dramatic fashion after hitting a low just below 1%—and haven’t looked back since:
The pivot and relentless push higher in the ten-year treasury have been historic and impulsive, prompting investors to reevaluate their portfolio allocations to perform better in an environment that may carry with it higher rates for longer.
Rates tend to trade in ranges for periods of time (1-3 years) depending on the economic activity and inflation in the system. Post-pandemic markets have been attempting to find where the next interest rate range of trade will be. This process has been a messy affair complicated by supply and demand disruptions within various parts of the cycle.
Entering 2024, we suspect rates will be less one-sided than in 2023 and will experience more back-and-forth trading between 3 and 4.5%. This range of sideways stability in 2024 may be followed by another leg higher in rates after 2024, assuming we don't enter a recession or experience a black swan event that threatens markets.
The bottom line: After such a relentless push for higher rates, we wouldn’t be surprised to see a moderation of this trend in the first half of 2024. If we don’t experience a deep recession or black swan event, we expect to see rates pull back towards 3% in the first half of 2024, followed by another higher wave (as depicted in the chart above).
Considering demographic dynamics (Hello, Millennials) and supply constraints in many commodity markets, investors should probably have an allocation plan that includes rates remaining above 3% and rising commodity prices for the foreseeable future.
The bears haven’t gone into hibernation, and the bulls aren’t out of the woods just yet!
As some of you recall, the overall equity markets made a top around January of 2022, then dropped more than 20% into October. The large-cap equities subsequently spent all of 2023 recovering from that decline. It’s important to remember that small-cap equities and high-yield debt securities spent 2023 going sideways instead of recovering.
Believe it or not, this was kind of the point. Beginning in 2021, the Federal Reserve’s goal was to slow down the economy and get inflation to be truly “transitory.” The market’s behavior in 2023 was part of a successful step one. Now, we’re all paying a lot more for products and services than we were before—and no one’s net worth has increased enough to offset that inflation phenomenon. Understandably, we’re all feeling a little bit frustrated by this.
Welcome to stagflation. And we may have to get used to it.
This situation could last a few more years. If that’s the case, our outlooks on metals, oil, and interest rates might be the areas that provide us greater value—so I think we should all keep an eye on those for the foreseeable future.
For now, let’s look at the SP500 chart that we provided our clients and VIPs in December 2023:
As you can see, we have been under the belief (for many reasons you can watch here) that the rally in equities, which started in October of 2022, looked like a bear market rally. We also believe this rally has a high level of opportunity to fail and turn south before the end of the Bear Market that started in 2022.
But the equity markets are now playing around their old highs—is the Bear Market over? Should we consider buying stocks and their indexes on dips? Or could investors do better by focusing on other markets as potential opportunities for income and growth?
As always, it depends. So, let’s look at some potentials to consider on the charts using the SP500:
While there are many potentials, the charts above depict the two I see most out in the world of financial blogging and media. I’m still leaning on the bear side by a slim margin—let’s call it 60/40 and have a plan ready and in place in case that changes.
The good news is that, at the current moment, markets are in an inflection zone where they’ll show us their next longer-term intentions very soon. Those paying attention with a plan in place may have a unique timing opportunity coming up as we start 2024.
It’s an interesting market with a lot going on—which will most likely give Justin, Patrick and I a lot to update you on at the end of the month and throughout all of 2024!