February 05, 2024

Consensus almost seems universal that stocks will rise in 2024. Are the bears dead? Maybe they’re just hibernating. Don’t forget how wrong the confident consensus outlooks have been over the last two years.

At the end of 2021, everyone was optimistic. But 2022 was a disaster in both the bond and equity markets, which is a rare feat.

After such a bad year, the consensus outlook for 2023 was wildly confident that we were in for another down year, especially in mega tech. Of course, that couldn’t have been more off the mark as the S&P 500 rose more than 26.0%  and tech undoubtedly led the charge!

Today, the consensus is exceedingly bullish. Again, bears are asleep. It’s funny how the recent rising stock prices changed collective opinion.

But what evidence is there that the optimistic call of 2024 will be accurate? Considering the “groupstink” feeding the forecasts, this year’s consensus should be viewed skeptically.

The equity risk premium, which is the S&P 500 earnings yield divided by the risk-free return, is still thin. Historically, that is a reasonable predictor of weak markets. Also, rate cuts by the Federal Reserve are typically bearish for stocks.

I don’t think it’s responsible to discount the geopolitical situation right now, either. The Black Swans of geopolitics are largely being ignored, despite the dangerous similarities right now to 1914 and 1938 (i.e., right before each World War).

In America, our presidential choices are likely between an aging incumbent president and an ex-president who’s been indicted multiple times. Washington D.C. is incredibly partisan right now and ill-equipped for compromise on important matters. That doesn’t instill confidence.

Finally, there’s our debt and deficits. Politicians ignore them both. Despite markets recently hitting all-time highs, it seems the enormous debt load must affect economic growth at some point.