Crisis Averted

Investors,

There was no recession in 2023. There was no financial crisis. There was no collapse in CRE. There was no acceleration of inflation. There was no market crash.

Instead, there was a bull market in stocks amidst a backdrop of resilient & dynamic economic data and a disinflationary environment. The S&P 500 generated a return of +24% in 2023, even closing above the 2021 calendar year close. At the index level, it’s clear to see that each of the four major indices experienced strong returns in 2023:

Despite all of the chaos that happened this year (and there was quite a bit), each index massively outperformed their average calendar year returns in the post-WW2 era and they hardly had negative YTD performance at any point throughout the year.

Stocks went up. They went down. Then they went up some more.

The “ups” outweighed the “downs” and the result was that the S&P 500 had the highest weekly close of all-time to end the year.

By extension, this means that the S&P 500 also had the highest monthly, quarterly, and annual close of all-time, which probably doesn’t happen if we’re in a bear market…

Doomers will look at these charts & objective facts by responding that strength at the index level was a facade produced by outperformance from the largest stocks in the S&P 500. As I’ve explained all year, the MVP’s of the market have been performing like MVP’s. Anything less would be concerning; however, considering that they are the best “players” on the “team”, we want them to perform like the best!

If I’m a fan of the Philadelphia 76ers, I want Joel Embiid to put up huge numbers and outperform everyone else on the team because the data suggests that it gives the team the highest probability to win. If I’m a fan of the LA Dodgers, I’m going to want Shohei Ohtani to perform like an MVP and throw a no-hitter because then we win! If I’m a fan of the Miami Dolphins, I want Tyreek Hill to score 4 touchdowns in a game because we’ll probably win if he does.

The same is true in the stock market.

While Magnificent 7 stocks outperformed “everything else”, we must also recognize that the equal-weight S&P 500 ($RSP) was up nearly +12% in 2023, outperforming its average calendar year return. Objectively, that’s a fantastic year!

I put “everything else” in quotes because it’s also a blasphemous statement.

You know which other areas of the market outperformed? The sectors/industries that typically outperform during bull markets!

• Consumer discretionary

• Communications

• Industrials

• Technology

• Homebuilders

• Semiconductors

• Cybersecurity

• Broker-dealers

• SaaS

• Recent IPO’s

• The small-cap segments for many of these sectors/industries

The areas that underperformed were the sectors/industries that typically underperform during bull markets, the defensive stocks like:

• Consumer staples (down -3% in 2023)

• Utilities (down -10% in 2023)

• Healthcare (up +0.7% in 2023)

In other words, this was an above average year with typical bull market results.

The heat map for the S&P 500 above suggests that most stocks had a strong year; however, a quick dive into the market internals proves that it’s true:

• Historically, the S&P 500 has produced an average calendar year return of +9%. In 2023, there were 250 stocks within the index that generated a return of +10% or more. In other words, half of the index outperformed the average calendar year return for the market.

• There were 172 stocks in the S&P 500 that generated a return of +20 or more.

• There were 118 stocks in the S&P 500 that generated a return of +30% or more.

• There were 61 stocks in the S&P 500 that generated a return of +50% or more.

• There were 327 stocks in the S&P 500 that had a positive return in 2023.

• Of the 176 that had a negative return, 84 of them had a return worse than -10%.

• Of those 84, the predominant sector were energy, staples, utilities, and healthcare.

• Finally, 376 stocks in the S&P 500 are trading above their 200-day moving average.

This is fantastic data, highlighting the broad-based upside participation in 2023.

It’s unequivocal. You can’t argue with it. It’s just a fact.

Amazingly, these facts occurred despite a plethora of risks that arose during the year:

As we go into 2024, I will emphasize the same characteristics that made us successful in 2023: objectivity, adaptability, self-accountability, and an emphasis on price action over narratives, using data-driven analysis.

Thankfully portfolio performance in 2023 speaks for itself:

If you struggled in 2023, that’s okay. If you don’t want to struggle in 2024, I’d encourage you to upgrade to the premium version of Cubic Analytics to access enhanced research & more benefits than these free reports.

I’ll be publishing new research for the premium team tomorrow.

Best,

Caleb Franzen

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DISCLAIMER:

This report expresses the views of the author as of the date it was published, and are subject to change without notice. The author believes that the information, data, and charts contained within this report are accurate, but cannot guarantee the accuracy of such information.

The investment thesis, security analysis, risk appetite, & timeframes expressed above are strictly those of the author and are not intended to be interpreted as financial advice. As such, market views covered in this publication are not to be considered investment advice and should be regarded as information only. The mention, discussion, and/or analysis of individual securities is not a solicitation or recommendation to buy, sell, or hold said security.

Each investor is responsible to conduct their own due diligence and to understand the risks associated with any information that is reviewed. The information contained herein does not constitute and shouldn’t be construed as a solicitation of advisory services. Consult a registered financial advisor and/or certified financial planner before making any investment decisions.