The crystal ball is cloudy this year my friends. In the past it was easier to come up with my annual list of predictions, even if it turns out I was wrong. Heading into 2024, however, is proving more challenging when thinking about what might happen in markets, economies and business.
Coming off a wonderfully surprising stock market global boom of 2023, this year could be anybody’s guess. Oh, and I’m told there’s an election happening in November which could also muddle the market waters even more.
But as our tagline for “Last Call” goes, we’ve got to belly up or buckle up and step up with some thoughts on the new year. And, like in the past 10 or so years we’ve been doing this, remember these are not actionable investment advice, but rather ideas and thoughts to stoke debate and discussion.
(To see how I did on my 2023 predictions, you can click here.)
While historically there would be five ideas, this year we are going “four for ’24.”
Prediction #4: (Some) Solar Flares Back Up
First, we could also make the prediction there will be bankruptcies among some wind, solar or battery stocks. It is likely given balance sheets stuffed with leverage, still-high interest rates and demand in some markets that is simply still not there. It was a year rough on many investors in the “industry of the future.”
SolarEdge was down 67% and giant NextEra Energy Partners lost a third of its market value. The Invesco Solar ETF (TAN) was down 30%.
It was painful. Wind power companies may struggle with high costs and environmental resistance, but solar is a different story. Solar could soon surpass coal as a source of global electricity generation. Utility-scale solar projects are growing around the world, and Wall Street firm T.D. Cowen says focus on companies with those types of big projects. Specifically the firm likes First Solar (FSLR), naming it as a top pick in 2024. They aren’t alone. The median price target of nearly 30 analysts covering First Solar is $231.56, according to FactSet, more than 30% above the current price. There is too much money chasing solar projects, someone has to win. Pick your solar spots.
Where I could be wrong: Interest rates move the wrong way. Already sluggish government permitting process gets even worse, hurting new projects. Investors give up on ‘new’ energy. Political backlash if the former guy wins back the White House.
Prediction #3: Brazil Bests the U.S. Market
“Brazil is the country of the future. Always has been, always will be.”
So goes the old ‘joke’ about Brazil investing. That it’s always a country that almost gets there and then falls apart. I think Brazil is on a real upswing and stocks will benefit and even outperform the U.S. market.
Unemployment is below 7%. High for us, but down from nearly 14% before the pandemic. Brazil is also a big bet on commodities. It’s a huge producer of soybeans, iron ore, coffee, sugar and more. The big story however is oil. Brazil is quietly becoming an oil superpower, pumping out more than 3.5 million barrels of oil per day and headed toward 4 million. Watch the iShares MSCI Brazil (EWZ) ETF as a proxy.
Where I could be wrong: If the U.S. dollar pops, it could sink the commodities story. Or if oil prices plunge. Brazil also had a good 2023, so one wonders if all the market juice has been squeezed.
Prediction #2: Oil & Nat Gas End Flat to Lower
Yes, I mean lower… for both oil and gas. Or perhaps they end flat at best. This may seem surprising given that the majority of the calls out there seem to be bullish. But they were last year as well and the bulls got beaten up a bit.
Here’s the thinking for 2024: global oil demand is going to grow, but given China’s rolling economic pain it may increase by less than some expect. In the meantime, global oil supplies are plentiful. Production here is over 13 million barrels per day and Brazil and Guyana are becoming rising stars in oil drilling, with Brazil possibly hitting 4 million barrels per day in the near future (see: prediction #3).
Russia remains robust on global markets despite sanctions, and OPEC may have done most of what it can to keep its member and allies production levels lower to balance out global markets. There is also a potentially new development around China, and that is that the nation may try to grow it’s own shale oil output. China imports and ton of oil and natural gas, and Citigroup notes that China is likely to become more of a local oil producer to help it on national security grounds.
Where I could be wrong: The Middle East situation gets worse, OPEC+ or Saudi Arabia further cut production to prop up prices, global demand suddenly booms.
Prediction #1: Small Caps Beat the S&P 500
2023 was the year the mega cap stocks flexed. They were big and got bigger, with the so-called “Magnificent 7” (hate the name) leading the way. These elites of Wall Street may perform again, but there are lots of other great companies out there. No doubt some are severely unloved small cap stocks. This year will hopefully be the year things broaden out and investors come back to the rest of the market.
All runs eventually end and new money needs to go somewhere.
Where I could be wrong: Investors could care less about valuation and just continue to buy the ‘Mag 7’ and other monster cap stocks. A slowdown in the U.S. economy also would hit the smaller cap stocks harder.
(Watch Brian Sullivan on CNBC’s “Last Call” Monday through Friday at 7 p.m.)