Stocks with Josh talks 2024 market moves (Part 1)

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We have a special two part podcast episode with stocks from Josh. In our first part, I will chat with Josh about the year that was and get his take on the outperformance of large cap stocks, including the Magnificent Seven in 2023, as well as the gyrations in the bond market, including why the inverted yield curve has yet to signal a recession.

Hi welcome to mobile money by moomoo I'm your host, Justin Zachs, Vice President of Strategy at Moomoo Technology. I've spent my whole career in and around financial markets, so it's something I have a real passion for. This is a show that helps investors gain a better understanding of markets and their money. Today, we'll be talking with Josh from Stocks with Josh about possible scenarios for the economy and markets in 2024 and what that might mean for investors.

Please remember that past performance is no guarantee of future results and that investing is risky and the landscape continues to evolve. Hi, Josh, how are you?

I'm good. I'm good. Justin, as you know, I've been on a one month vacation. I don't know. Maybe you didn't know that. I'm in Hawaii right now and I've been wrapping up, coming to the end of a one month vacation. So Wall Street has been treating me pretty good. But, you know, in my mind, I'm really excited about doing this podcast with you today because I've been actively in my RESTful state thinking about 2024 and you know how to make the most money.

And, you know, because I'm on YouTube, you know, stocks with Josh, I speak to a community every single day about the market and I want to make money and I want to help others make money. And, you know, either looking at charts or digesting content from the market, you know, I'm processing and thinking about what is going to happen in this next year.

And what is so interesting, the set up for this year is the opposite of what we had in 2022 when we got to January 1st from, you know, in 2023, from 2022, we had a year of decline off of massive peaks and it just seemed like it would never end. Every time we had a swing high, we had a we had a lower swing low, we'd get another swing high, we'd get a lower swing low, and eventually we got to January 1st.

And that's actually when everybody thought the fireworks was really going to begin. That's when they thought the Armageddon mother of all recessions was going to hit in 2023. But the opposite happened. We went up straight for six months. Big tech leading the way. The name Magnificent Seven was coined to reference all of these companies that just seemed to not stop.

The Russell Small caps lagged. We then got halfway through the year and it seemed as if finally the market decided to digest some of the some of the upswing, you know. So we had a couple tough months and that's the setup that we've got going into 2024. And so it's the opposite of what we had in 2022. And, you know, I guess, you know, the question has to be made.

Do we think this is going higher in 2024? But I'm going to let you ask the questions. I just wanted to give an overview of where we stood. What do you what where do you think we go?

Just and so yeah, that's that's really interesting because I didn't know you're in Hawaii, but it was I've been reading this book about sleep, right. And and getting that rest actually can help you form your thoughts better. And so having that relaxation, you can come at a problem or a situation from a different angle. And it had to have a much deeper understanding.

So glad you're in Hawaii. Glad you could join us so early there in Hawaii. And Yeah. Before we get into 2024, I just want to, you know, zoom out a little bit and think about what's you know, you've kind of laid out what's happened in the stock market. And I want to kind of lay out what's going on overall in 2023.

And in a lot of ways, and particularly recently last few months, you know, stocks have really followed bonds and the one thing I've been looking at in the last year and a half is the yield curve. So basically the you know, that and maybe you could explain it a little bit more for our listeners of what what yield curve inversion is.

But basically we've had this situation where two year bonds, the yields are higher than the ten year bonds and that's usually reversed. And and in the past, almost always in the past, that has eventually led to a recession. And just curious kind of what your thoughts on or maybe you could tell us a little bit more about yield curve inversion, what your thoughts are and what that means for the stock market and possible a recession or not?

Yeah, I would love to. Just to be clear, 100% of the time when we had a yield curve as inverted as we've had here in 2023, it has led to recession. So from my point of view, the yield curve gods have spoken. We are going to have a recessionary moment. And I think that what I'm going to contribute to the topic is not, if we will, but how bad it will be.

And and that's where, you know, I won't suggest that I have a crystal ball and could tell you how bad it will be. I do believe that when we see that form of inversion, we see that flight of safety, you know, you know, into closer bonds. What it often means is that the market as a whole is pulling capital out.

Right? So they can basically get a better price at a later date. And they're trying to pull, you know, early on in 2020, beginning of 20, at the end of 2021, in the beginning of 2022, you know, you start hearing cash is king. Right. And people were trying to go to the safety of of holding cash and going into near term bonds.

And they weren't interested in the long term bonds. And so they didn't want to have their money locked up a lot. Sometimes that could indicate that there's going to be a fire sale in the stock market. We saw and I'll tell you, this is another very important or interesting observation Right now. Warren Buffett is sitting on more cash.

And, you know, he seems to be a pretty good investor. And, you know, he thinks that it's time to get ready for some impending moment in the market. The yield Kurds have spoken. Warren Buffett saving cash. Apple, which is a very strategic company. They're sitting on a very large stockpile of cash. We've seen a full round of big tech CEOs and executive staff members selling their own shares.

Right. And so I do think that it's going to lead to a recession. How deep of a recession? I don't know. I'm going to turn to some commentary from Larry Fink, the CEO of BlackRock, something he said in an interview not too long ago I found fascinating. And he pretty much said that he wasn't scared of a deep and I'm paraphrasing, I'm not quoting him.

I'm paraphrasing my interpretation of what he said. They basically of an extremely deep recession because we are just spending so much money at the federal government level that we're set up to spend $1,000,000,000,000 a year every year for the next five years, and that there just isn't going to be any way that $1,000,000,000,000 being injected into the economy through, you know, some could say excessive spending or uncontrolled spending simply won't booi this economy and make it strong.

And so if we were under frugal financial leadership, this probably would be a very deep recession. But simply because we are in an age of of quantitative easing like nobody has, like we've never seen before, the world has never seen it before. The rest of the world tries to follows follow us. But they just don't they don't do it, you know?

I mean, right now I've been watching China and, you know, they're talking about spending 166 billion as if it's a big deal. And I'm thinking, you know, we will spend a trillion this year and we won't think twice about it. So I know I'm going very broad. Let me jump in. Let me come back in for.

Just just a few follow ups to that. You know, I'm just really curious to get your opinion on know a lot of people at the beginning of this year were calling for a recession and being that the Fed, you know, raised rates so quickly and so fast, 500 basis points, that recession never came to fruition. But I would tell you the everyday person on the street feels like it's a recession, a lot of them.

But that's not what the numbers are telling us. So, you know, it's you know, and if the Fed is going to cut the start to cut rates, are we in the clear or when we might this recession hit? Like, how long does it take for some of these big raises to work through the system?

Well, you know, I want to I want to touch on the impact of the Fed cutting rates and how that's going to impact the stock market. And and then the bigger question you just asked is about the recession. So a recession largely is going to be when we see wholesale cuts and loss of of, you know, people getting laid off.

And, you know, we see which we really not we haven't seen that. We saw an extremely tight labor market. It's slightly easing right now. And so I really I have less commentary on a recession. I think that we are going to see some slow up of big tech companies, but we're also living in the age of AI. And so there are other factors.

There's global factors that could cause China's coming out of a slowdown. And so their economy is picking back up. And so with China's economy picking back up, with the US economy being well stimulated, I think going back to Larry Fink's point of view, he doesn't see things, you know, going really bad for a really long amount of time.

Now, just a comment on the whole deal with the interest rates when the fact is, is that from the minute the Fed begins to raise rates, it typically and the minute we get an inverted yield curve. Now, don't quote me on this exactly, but it's typically over a year to over a year and a half before the impact of a recession actually comes.

And so we thought we saw all the interest rates raised largely in 2022, which means that from the very beginning, if we were simply to go by the history books, we wouldn't have seen a recession until until potentially sometimes a year and a half, 18 months into that would put us right into where we're at kind of now.

In 2023, we didn't see it. The market's pushing for all time highs and so perhaps this window's going a little bit longer. But the real drop in the stock market typically comes when the Fed does the very first cut of his interest rates. So the long term impact of him cutting rates will lead to the stock market going up.

But initially there is an average drop of 20% in stocks when he initiates his very first cut. And so, you know, right now people are talking about that first cut coming in March. And so, you know, and there have been historically three times the market that I'm aware of, the dot com bubble, the Great Recession. There's been three times.

And then COVID, there's been three times when when he has cut that the markets pulled back 50%. And so after he after he starts cutting, within six months, the market will go up 3%. But there is typically a pretty strong negative reaction to him cutting. And what they're doing, Justin, is they're pricing in the reason he's cutting, which is that things began to slow down.

Now, big tech hasn't really slowed down. The slowdown has been minimal. I have not looked at any of these companies and seen, you know, disastrous earnings. The earnings have all been pretty good. They've been beating earnings, most of them with some, you know, some minor guidance issues. But largely they've been coming out beating earnings. And so going back to what Larry Fink said, the economy is healthy and that's the reason why we had inflation, because it was it was heating up and cooking up from all that money that went in in 2020.

I think we're going to have to face because of the yield curve and because of the Fed cutting rates, we are going to have to face a dip in these markets in 2024.

Yeah, I've seen, you know, a lot of the Wall Street economists put out their their targets for the end of 2020 for a few weeks ago. And it looks like we're already there on a lot of these targets. So I think it's something like they might have 1% appreciation. And these are the economists that are usually looking for a minimum of 5 to 7%.

So, you know, it's curious to see that. And my next question is about so how can investors prepare for this going into 2024?

That's a great question. I think that, you know, I mean, I would say off the top of my head, it's time to consider taking some profits, especially right now. In 2023, you could potentially take, you know, still take some profits. And, you know, I'm not going to get into, you know, tax issues, but you have the opportunity of locking in some things here in 2023.

But, you know, taking Warren Buffett's lead and going to cash, the market just went up. I was looking at media today, Justin, and, you know, meta is not it's $20 away from its all time high and this was a stock and I think it's sitting at 358 right now. This is a stock that was, you know under 90 bucks at the beginning of 2023.

So it's gone up hundreds and hundreds of percent. Why would anybody think that we're going to go up another 100, 200% in 2024 on Meta? So I'm not going to make any recommendation. And all I'm going to tell you is that if you're in if you're heavily into big tech and you're up over 100% and you're thinking that we're going higher, the analysts and the experts are not predicting a massive return for the S&P in 2024.

I think, as you just indicated, a lot of them are saying that we would do well if we finished the year flat. I would agree we would do incredibly well if we finished the year flat, you know, it might be time to begin to look at considering taking some profit in big tech and holding some cash, waiting for that first Fed cut in potentially March.

See what impact it has on the market. You know, there could be an opportunity to buy at a 20% drop in the S&P 500. And I can just tell you that's what I'm doing. I'm you know, I mean, I think it's you know, it's digest the market's going to have to digest this this rocket ship, you know, trail that we have.

And you look at those bars, man, they just stacked one on top of the other. You know, the market's going to digest that. We have a swing high right now. We're going to have a swing low, you know, So I would say perhaps consider going to some cash. And the fact is there is still, you know, everyone there's limitations of how much I Treasury bonds you can buy.

You can buy more, but you know that are protected by a tax. And so, you know, if you haven't if you haven't hit that number, I think it's $20,000 per person. If you know you and your spouse $40,000 if you haven't hit that number, you know, and you have the ability to invest in those types of treasuries, I would put some in short term treasuries.

Still, that seems to be an attractive thing waiting for the market to correct.

Yeah. And speaking of tech, you know, looking back on 2023, The Magnificent Seven, it's up, I think, over 100% way higher than the overall S&P 500. And the S&P 500 is way higher than the Russell 2000. And there just seems to be it seems to be a narrow rally. And that's quite unusual. And it's this this is one of the narrowest rallies we've seen in a while.

Do you think this can reverse or do you expect these you know, people continue to think that magnificent sevens best of breed and growth at any price and only buy the best companies no matter what the price is? What do you see for 2024 with this trend? Is this a setup for a reversal or do you expect these these magnificent Seven to continue to outperform?

That's a great question. I have actually recently on my show made a prediction about that or at least a shared with people what I was doing with, you know, with these plays. And my in my belief right now is that we're actually going to see big tech cool off, digest, move sideways, go into a little bit of a distribution phase, which means that you'll have higher price swings in a in a certain price range.

And I think that while that's happening so I'm not talking about a capitulation for big tech, I'm talking about a distribution phase, basically large and wide price swings over the course of time, largely staying at the upper end of its range while that's happening, I see the Russell coming up to meet it. It's sort of like those were the seven horsemen that that went forward, you know, driving the bull run.

And I think that the foot soldiers, which is the small cap, are behind them and I think they're catching up to the the you know, you could call it the financial war line, you know, the battle between the bulls and the bears. And I think that largely large cap is going to be cooling off, getting digested, just going into a distribution and moving sideways.

So ultimately, I think small cap will begin to catch up with with with big tech.

That wraps up our first part of our chat with Josh. Join us again next week as Josh shares his predictions and thoughts for 2024 and what we can expect.

The opinions expressed are those of the host and any guest speaker and not necessarily those of Moomoo Technologies Inc or its affiliates. The podcast is provided for informational educational purposes only and is not a recommendation or endorsement of any particular investment or investment strategy that may be mentioned or covered in the podcast. All investments involve risk and the loss of principal is possible.

Past performance does not indicate or guarantee future success. Moomoo is not affiliated with any outside guests or their companies. Information provided in this podcast is General in Nature and may not be appropriate for all investors. The Moomoo app is an online trading platform offered by Moomoo Technologies Inc securities, brokerage products and related services available through the Moomoo app or offered by Moomoo Financial Inc, a member of FINRA SIPC.