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Well, it’s Groundhog’s Day Earnings Season… again. With the first month of results for Q4, operating earnings estimates for the S&P 500 continued their long slide from their optimistic highs set back in June of 2022 (Chart 1). The 20% drop in projected EPS didn’t stop the index from rallying +30% over those 19 months. Full-year 2023 operating EPS is now crystallizing around $210—a 7% gain from 2022’s results.

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The Magnificent Seven’s remarkable performance defines the stock market in 2023. This basket of the seven largest companies in the S&P 500 index gained an average of 111% vs. an average gain of 9% for the other 493 companies. The combined impact of huge index weights and outsized performance made 2023 one of the most top-heavy markets in history. Whenever assets outperform to this degree over just a few quarters, the valuation alarm bells start clanging. Could the fundamentals possibly justify such a massive advance, or is AI mania responsible for the outperformance?

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Read this week's Major Trend.

CPI readings for December were a tad hotter than estimates. The path forward is unlikely to be a straight line down. Watch geopolitics closely, as it could drive prices in either direction very quickly.

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Over the entire history of this study, the momentum plays of our “Dreams” and “Nightmares” have worked both ways. This was not the case in 2023, however, as the fortunes for both groups (based on 2022 performance) U-turned in a considerable way.

Given how many potential political and geopolitical hotspots there are at present, it might be a bit presumptuous to think 2024 will be a typical year. Politics and geopolitics are the most underpriced risk for 2024.

In the theme that’s reminiscent of all but a couple of the last 15 years, the optimal strategy for equity managers and asset allocators in 2023 was the same: Buy the S&P 500, and then hit the links.

There are reports that 40% with student loans did not make an initial payment when installments resumed in October. Meanwhile, among seniors aged 65-79, the share with a mortgage rose to 41% in 2022, up from 24% in 1989, while the percentage of those aged 80+ with a mortgage increased from 3% to 31% during the same time! 

Remember the nickname for retired San Antonio Spurs star Tim Duncan? “The Big Fundamental.” The stock market itself is a big fundamental—and that’s probably truer now than in past cycles, since market capitalization relative to U.S. GDP is larger today—with the exception being the most extreme phase of the post-COVID mania.

Speculating on the link between style performance and interest rates is a favorite pastime of factor aficionados, but 2023 provided a real-time laboratory to evaluate those ideas. We examined factor returns during the interest rate swings to uncover some empirical insights into this important relationship.

Whenever a basket of stocks with the market heft of the Magnificent 7 shows a price gain of 111% in a single year, the valuation alarm-bells ring loud. Is this gain the result of a mania for all things AI, or could the move be justified by equally magnificent fundamentals? 

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Read this week's Major Trend.

Depending on how you measure it, with a few days to go, it’s either been a superbly profitable 2023 or a year that barely crept above the 30-year average.

This looks like a market that has made up its mind about inflation and a coming soft landing. Inflation and Economic Surprises in 2023 have helped form this rosy outlook.

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