TEN VARIANT VIEWS FOR 2024
The great Byron Wien passed away this past year. Byron was the Chief Investment Strategist at Morgan Stanley for twenty-one years. He was most famous for his iconic annual list of “Top Ten Surprises”. For at least a decade or more, there was nothing written by Wall Street banks that was more anticipated by the investment community. Byron made ten predictions that he argued the market assigned less than one-third probability, but he believed had a 50% or better chance of occurring. I always loved that construct because so much about generating alpha as an investor is recognizing where consensus lies and where you might have a variant view or, in other words, the opportunity to make a contrarian call. I started my career at Morgan Stanley and it was the work of Byron and his colleague Barton Biggs who made me want to grow up be a “macro guy” myself. In homage to Mr. Wien, we humbly offer ten views that we believe will come to fruition while consensus currently does not.
The S&P will finish 2024 slightly lower from where it is today. The current high multiples will go sideways but 2024 earnings per share will be down y/y. Our view is that given we have had des minimis EPS growth amid roaring nominal GDP growth, the odds of earnings going higher as consumption slows, and cost of capital rises, are remote. We think that the incredibly narrow breadth reflected in the dominance of mega-caps will persist and we will have another year of languishing if not negative performance from small and mid-cap stocks.
Oil trades sideways to down for the first quarter of 2024 leading to US production cuts and reduced rig counts. We will continue to see private producers in the Permian consolidated by “rational” public companies. Non-OECD demand continues to surprise to the upside as global middle-class consumption accelerates. Oil finishes 2024 over $90.
Inflation bottoms out above 2% and upside risk emerges to goods inflation driven by labor costs, base effects, tariffs, and growing protectionism globally. Wages remain inflationary despite the unemployment rate moving over 4% as demand for labor in leisure and hospitality, education, government, and healthcare remains strong. Labor activity grows further in the services sector.
As a result of stricter border enforcement and the enforcement of laws preventing companies from hiring undocumented labor, wage inflation accelerates materially in jobs traditionally filled by migrant labor. Costs rise in fresh foods, proteins, residential construction, etc.
The Fed cuts only three times or less in 2024 despite weak/flat real economic growth because of those persistent inflationary forces. Weaker growth globally and more accommodative monetary policy in Europe and elsewhere lead to the US Dollar making new highs against global currencies.
The yield curve steepens as investors eschew duration due to fears of open-ended supply and persistent fears of secular inflation.
The fiscal stimulus provided by The Chips Act and The Inflation Reduction act continue to support construction higher than expected levels of activity and capital spending in areas like semiconductors, EV batteries, etc.
Gold trades up by more than 20%. Central banks continue to buy record amounts of gold as secular inflation fears are not extinguished by the Fed. The fiscal outlook worsens as Congress fails to do anything about surging deficits: no cuts to spending and the parties trade favored tax cuts thereby reducing revenue.
The K-shaped recovery dynamic continues to play out in 2024 as the consumer cohort without savings continues to show strain in the form higher delinquencies and defaults and lower spending while the upper half of US consumers remain resilient. Home prices remain robust and affordability continues at historically low levels.
China is left with no other option but to bail out its financial system as the residential real estate market weakens further. Foreign direct investment moves deeply negative, and China is forced to raise interest rates to prevent further capital flight. The Yuan weakens materially vs. the US Dollar. The economic recession in China leads Xi to refocus his countries attention to Taiwan.
Tim Pierotti is WealthVest’s Chief Investment Officer.
Tim has over 25 years of experience in various aspects of the equities business. Prior to joining WealthVest, Mr. Pierotti spent seven years in Equity Research management roles at Deutsche Bank and most recently at BMO where he was a Managing Director and Head of US Product Management. Tim has 11 years of investment experience most notably as Head of Consumer Research and Portfolio Manager at The Galleon Group, a former NY based $8Bln Long/Short hedge fund. Tim is a graduate of Boston College and lives in Summit NJ.
WealthVest makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made in this material, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of Tim as of the date indicated. They do not necessarily reflect the views and opinions of WealthVest and are subject to change at any time without notice. WealthVest does not have any responsibility to update this material to account for such changes. There can be no assurance that any trends discussed during this material will continue.
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