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By Steve Dinnen
Investors chalked up some very respectable stats in 2023, with Dow Jones rising nearly 14% and the Nasdaq-100 up 54% — its best year ever.
So what lies ahead in 2024? We spoke about this with Kelly Flynn, founder and chief investment officer of Prospective Value Partners in Des Moines. While he didn’t make predictions about specific stocks — you have to hire him to do that — he did say that he’s seeing several factors playing out that bode well for the market as a whole.
“All things being equal, lower rates are certainly better overall for stocks, and at least some Fed dovishness seems to be in the cards,” he said.
Of course, the factors that could push the Federal Reserve toward more aggressive cuts are themselves bad for stocks — namely, economic weakness or deflation. “So with a ‘soft landing’ economic base case, I am reasonably optimistic but mindful of the potential for volatility,” he said.
“Value versus growth” and “small versus large” market capitalizations are also important considerations, Flynn said. Over the long term, value has outperformed growth, as it did when inflation and rising rates reared their ugly heads in 2022, making growth stocks even more expensive. But if you consider the few previous years, growth outperformed value, bucking the longer-term patterns.
“Was 2022 just a head fake?” Flynn wondered. “Time will tell.”
One more tip: Even though the S&P 500 is generally thought of as a “core” index, it’s effectively become a growth index because it doesn’t regularly rebalance. In 2023, for instance, about two-thirds of its gains came from just seven growth stocks, known as the Magnificent Seven.
