Look Beyond the Headlines for Opportunities

| December 29, 2023

A year ago Wall Street analysts expected the S&P 500 at the end of 2023 to be up 13% from 2022. There’s still time for the index to drop before the end of the year, but as of early December they year-to-date increase was almost 20%.

If the performance holds, that’s an upward surprise of about 50%. This occurred despite ongoing concerns during the year about interest rates, regional bank failures, and increasing global tensions. Driving the rally for this year has been relatively good news about:

  • Third-quarter earnings for the S&P 500 in 2023 rose from the year-ago quarter by almost 5%. That’s the first year-on-year growth since the third quarter of 2022.
  • Improved inflation data. The Fed paused interest rate hikes, and core inflation (which doesn’t include food and energy costs) has been creeping down.

If interest rates do start to reverse, we could see good news in both the stock and bond markets. Long-term bonds, which were trampled in 2022 and further pummeled in 2023, could see a recovery. Lower interest rates could help companies raise capital and help market valuations.

But let’s not get ahead of ourselves. Interest rates have been sticky, and I don’t feel like there’s any guarantee of better days really soon. And the rise in the S&P 500 largely has been the result of the performance of the index’s largest stocks—the Magnificent 7 (Amazon, Apple, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla), which I wrote about recently.

In this case a rising tide has not been lifting all the boats, however. The rest of the S&P 500 hasn’t benefited nearly as much. Meanwhile, the S&P 600, comprising small-cap stocks, has increased only 5% for the year. And the S&P 400, consisting of mid-cap companies, has risen 8%.

It’s in the small- and mid-cap companies that I see potential. Stocks tend to move in cycles, and currently small and midsize companies are relatively cheap compared with large-company ones. As more and more people back up the truck to load the largest stocks into their portfolios, patient investors who do their homework on quality smaller companies could be rewarded.

Part of being a successful investor is zigging while the rest of the world is zagging. To do this you need to ignore any fear of missing out while focusing on company fundamentals and stock valuations. It can be a lonely pursuit, but it’s one of the most proven pathways to long-term success.

For 2024 make it a resolution to be your own investor and not follow the crowd. The experts might have been directionally correct about this year—the market did rebound. But they were way off regarding their predictions. So when it comes to investing, the crowd is not your friend. Your main priority is to your financial goals and how your portfolio will help you get there by balancing risk and return.




Evan R. Guido is the Founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or eguido@aksalawealth.com.   Read more of his insights at https://finance.heraldtribune.com/category/ask-guido/. Securities offered through Avantax Investment ServicesSM, Member FINRA, SIPC.  Investment advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through  an Avantax affiliated insurance agency.  6260 Lake Osprey Dr. Lakewood Ranch, FL 34240.  The views and opinions presented in this article are those of Evan R. Guido and not of Avantax Wealth Management® or its subsidiaries.  Past performance does not guarantee future results. The S&P 500 is an index of 500 major, large-cap U.S. corporations. Standard & Poor's is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index.  An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency.  Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.  CDs are FDIC insured and offer a fixed rate of return.  They do not necessarily protect against a rising cost of living.  The FDIC insurance on CDs applies in case of insolvency of the bank, but does not protect market value.  Other investments are not insured and their principal and yield may fluctuate with market conditions. Investments are subject to market risks including the potential loss of principal invested.