Positioning for The Monumental Money Shift of 2024 – November 30, 2023
A couple of weeks ago, we made the non-consensus call that the market lows were in. Falling interest rates, stable inflation, and re-accelerating earnings growth laid a macro foundation for higher equity prices.
Talk about a heck of a call! With November posting one of the best monthly S&P 500 performances in years, we aren’t abandoning that positive outlook.
The first major tailwind for stocks gaining near-term is the seasonal December tailwind. Positive momentum thrusts are common at yearend.
Since 1990, November boasts average gains of 2.1% (including 2023). That momentum spills over into December with typical gains of +1.3%:
This near-term technical catalyst suggests there’s more gas left in the tank. But let’s now zoom out a bit on the medium-term setup.
Devout bears love to discuss the havoc that elevated interest rates have put on consumers and companies.
I get it. After the Fed hiked Fed Funds interest rates at a record pace to 5.5%, it’s a growling argument to make.
That is, until you consider that interest rates are set to decline in a big way in 2024.
The 2nd major tailwind for stocks is we are about to enter a declining interest rate regime. Turns out, rampant inflation was indeed transitory.
According to the CME Fed Watch tool, investors are betting that the Fed will start easing interest rates as early as May.
Even better, expectations now point to a shaving of 1.25% off the Fed Funds rate by December:
If rising rates cause pain, it’s only logical to expect relief when rates backup.
But we can’t stop here! The next 2 reasons to stay committed to stocks have to do with my favorite market dynamic – positioning.
Nothing has a larger influence on market prices than money flows.
As interest rates surged, market participants flocked to safe Money Market funds for their risk-free +5% payouts.
Given rates are set to decline rapidly next year, those attractive yields will suddenly become less appealing…thus positioning for the Monumental Money Shift of 2024.
Reason number 3 to keep betting on equities comes down to the nearly $6 Trillion dollars camping out on the money market sidelines.
Focus on today and you’ll miss what’s coming. Money market outflows will eventually make their way into stocks.
Below shows the latest inflows to MM funds:
That’s a crowded trade right there! It doesn’t take a huge leap of faith to believe that trend is set to reverse.
Now, it’s time to drive this money shift narrative home. Here we have the advantage of measuring real-time equity positioning.
Mega equity inflows have already begun.
The 4th and final reason stocks have a major tailwind is due to the Big Money Index (BMI) telling us the risk-on nature happening right now.
The latest crowd-stunning rally is backed by a wave of accumulation. At the market lows we were pounding the table to buy stocks.
When 2 rare bear-killer signals emerge, prepare for a face-melter. That’s exactly what’s transpired.
Look how prescient our oversold BMI was back at the market lows in late October (white circle). This proprietary indicator greenlighted when the crowd was peak fearful.
This approach highlights why focusing on the here-and-now is rarely a profitable adventure.
Focus on where we’re going – UP UP and AWAY:
Ladies and gentlemen, if you’re not positioning for the Monumental Money Shift of 2024, I humbly suggest you reconsider.
The evidence is overwhelming that better days are ahead.
Let’s wrap up.
Here’s the bottom line: I believe 2024 can be a watershed moment for stocks. Yearend seasonal strength, coupled with falling interest rates, alongside record money market positioning, and a raging BMI mean one thing…
R.I.P bears!
For stock pickers, this is a tremendous opportunity. From my vantage point, the shift has already started.
Money is chasing high-quality stocks.
Author: Lucas Downey