It was nearly impossible to lose money in Q1 given a hearty 10% gain for the S&P 500 (SPY). Even more impressive was the 25% gain if you roll the clock back to the start of November 2023.
When you realize that the average annual gain for stocks is only 8%, then you appreciate that these good times are not going to last.
No...that doesn’t mean a bear market on the way. Just that the pace of these gains should slow dramatically from here.
Our goal in this commentary today is to recap the key details from Q1 in the hopes it lights a path to superior returns in the months ahead.
Market Commentary
Throughout 2023, and into early 2024, the stock market has been a bit lopsided. That being where too much of the gains have accrued to the mega cap tech stocks with smaller green arrows next to most other groups.
Thus, the following chart of Q1 performance by market cap will not come as a surprise to you:
Once again, we see that smaller stocks are lagging on the year (small, micro and nano). As shared with you quite a few times in the past, small stocks have a marked historical advantage over long caps going back 100 years. So, the 4 year advantage for large caps is a bit of an anomaly.
In many ways, small caps leading a bull market is the healthiest sign as it says that investors are in a risk taking mood. Whereas loading up on the same 7 mega cap tech stocks to me feels a bit like adding blocks to a tower in the game of Jenga. It works for a while, then becomes too tall and unstable leading to an eventual fall. More about what that means in the outlook section further below.
Now let’s check in with the 2024 performance by sector:
This is fairly well a repeat of 2023 with Technology and Communication Services leading the way. Whereas more defensive groups (Consumer Defensive, Utilities, Healthcare) are middle to bottom of the pack.
This is fairly typical for a bull market as Technology and Communication Services are 2 of the better growth oriented groups. The more surprising part is the weakness in Basic Materials and Industrials which is usually a strong performer in the early stages of a new bull market.
OK...this is what happened as we are only 18 months into a new bull market. And given that they typically last over 5 years there is good reason for optimism that more upside lies ahead. Yet as foreshadowed in the intro...the pace of gains should slow dramatically from here.
Market Outlook & Trading Plan
I recently shared a much more complete presentation on my stock market outlook for the rest of 2024 including a trading plan and top picks to outperform. Watch It Here >
The summary version is that the easy gains have been made with a roughly 50% gain in just 18 months. That is because investors are doing their typical job of reading ahead in the playbook.
For that I mean that investors are well aware that the Fed will be lowering rates sometime this year which will be a catalyst for higher economic growth. So they are bidding up stocks in advance of that action. That also opens the door for a fairly tepid response to the actual lowering of rates which is right now looking most like the June 12th Fed meeting.
Long story short, I suspect that the top for the S&P 500 this year will be about 5,500. A modest 5-6% increase from current levels. But more on par with the kind of realistic annual gains you should expect as we move forward.
Yes, I know that doesn’t sound too exciting for investors just hitching a ride on the market indices. Gladly I do see a path to vastly superior results if you appreciate these superior stock selection criteria.
First and foremost, the 4 year advantage for large caps should come to an end. I believe that small caps could easily outperform by 2-3X over the S&P 500 over the next couple years.
Second, basic materials and industrials should outperform as lower rates also lowers their cost structure (mostly because of lowering borrowing costs) leading to higher profit margins. This idea also points the way to invest in other industries that benefit from lower rates; housing, autos, banks, bonds and even income stocks (as bond rates go lower, the dividend yield on income stocks becomes more attractive helping to push up their price).
Lastly, we are moving past the phase where growth is center stage for stock selection. Going forward, the average stocks is pretty fully valued...and many of the large caps are clearly over valued. This will push investors to seek undervalued stocks to improve their performance.
Our great advantage in finding stocks that meet all 3 of these criteria is our proprietary POWR Ratings model analyst 118 factors for every stock pointing to its likely outperformance in the year ahead.
Yes, past performance is not a guarantee of future results, but when you consider the consistent outperformance of the POWR Ratings the past 25 years, it certainly improves your odds in using it as you move forward:
Your eye’s do not deceive you. The A rated stocks have topped the S&P 500 by nearly 4X going back to 1999. And that outperformance continues to roll here in 2024.
The downside of this model is that every day there are approximately 1,300 buy rated stocks to consider. If you would like me to narrow that down to my favorite 12 at this time, then read on below for more details...
What To Do Next?
Discover my current portfolio of 12 stocks packed to the brim with the outperforming benefits found in our exclusive POWR Ratings model. (Nearly 4X better than the S&P 500 going back to 1999)
This includes 5 under the radar small caps recently added with tremendous upside potential.
Plus I have 1 special ETF that is incredibly well positioned to outpace the market in the weeks and months ahead.
This is all based on my 44 years of investing experience seeing bull markets...bear markets...and everything between.
If you are curious to learn more, and want to see these lucky 13 hand selected trades, then please click the link below to get started now.
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares were trading at $518.48 per share on Tuesday afternoon, down $3.68 (-0.70%). Year-to-date, SPY has gained 9.42%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
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