Personal Wealth Management / Expert Commentary

Fisher Investments' Founder Ken Fisher Reviews Markets in 2023 and Provides His 2024 Outlook


Ken Fisher:

This time of year, I always tell people what I think the year ahead is going to look like. Now, the bad news is that any kind of forecasting is always imperfect. You try to take heuristics about how things work and assimilate them with your understanding of how things are, to come up with how you think things will be. I want to point out that I've just done my New York Post column to this effect, where I stick my neck out and say stupid stuff that maybe gets me in trouble. But partly I want to remind you of the way 2023 was. And then Christmas Day of 2022, my New York Post column forecast what I thought 2023 would be like, and it worked out pretty well.

What I said then, which sounded ridiculous at the time, and it's actually better to read the comments about my New York Post column on the comment section than reading the New York Post column itself to see how much people thought I was an idiot, which there's a certain amount of validity for. What I said was that when I look at all of history, 2022— now last year—was the closest in in any history year that I can find, to 1966 in so many ways. It's never perfect, but almost so, including a bear market that bottomed almost to the day when the bear market bottomed in 2022 at same time, same magnitude, rising interest rates, increasingly unpopular President, all of those things. And therefore I said pretty good likelihood that 2023 would be a lot like 1967. Now in, and as the column said, in 1967 the S&P 500 was up 24%. This year as we're coming to the end of 2023 the S&P 500 is up a little over 25%. It's pretty much been like 1967 was. President becoming increasingly unpopular, that was already becoming unpopular. Interest rates having hit their peaks and not going higher. The widely anticipated recession that never happened. This is both 1967 and 2023.

And my basic view is that we probably see 2024 look a lot like 1968. Also a positive year in stock market. Also an election year. Smaller returns than 2023 or 1967 had. The 1968 S&P 500 returns were 11%. Not partying on like 2023 was, but still nothing to snort at. Now let me make a couple of points that will seem maybe a little bit crazy to you, but I do believe they're fundamentally related to causal factors. And some of these I've said in other places and other times throughout the course of 2023.

A fact is that 11% number is real consistent with the average return of presidential elections over the course of the history of the S&P 500, number one. Number two—presidential election years over the course of the S&P 500 have not been as consistently positive as the third year of president's terms, which have been positive 92% of history. But they've been much more positive than the first and second year. The fourth year of president's terms have been positive 83% of history. There's not very many presidential election years that have gone negative. Presidents tend to be nicer then. They tend to make more promises. There tends to be no controversial legislation in presidential election years. But there's a killer point inside the data of election year and non-election year returns that you will have not heard if you haven't heard it from me or from Fisher Investments. Which is that if you take all of the second years of presidents terms like 2022 was, where there have been midterms election years. But all of the second years president's terms that were negative, the subsequent fourth year was positive every single time since 1932—no exceptions— with average returns of 15%.

And the reason for that is, I do believe causal, and I do believe it's because bear markets in a second year, or just bear markets in general, scare the bejabbers out of us. And once, as I've said multiple times, multiple ways, once we get the bejabbers scared out of us, it takes a long time for us to get our bejabbers back. And the bejabbers are the part where we're jab, jab, jab, jab, jab and get nervous about all kinds of stuff, leading us into a bear market. We've already had that taken out of us, and so it takes us a long time to get it back.

A simple point that I've made many, many times is that when a new bull market gets to a one-year anniversary, it has almost always in history hit a second-year anniversary. It hit that one-year anniversary in October 2023, so the odds favor it being higher in October 2024.

All of these things speak to my mind of not a year like 2023 with knockout stock market returns, which is bouncing off of the bottom of the 2022 bear market. But of a continuation of that bull market as it runs from, in a classical John Templeton modality of bull markets being born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The transition from skepticism into the beginnings of optimism in 2024.

A more mature bull market. Now in that as that maturing bull market occurs, it's very likely that we start to see some style shift and not all the continued leadership that bounced off the bottom. And one of the points that I made all throughout 2023, which worked pretty well, is that categories, not every single stock, but categories that tend to fall the most in a bear market initially tend to bounce the most early in the next bull market. We've been in that pretty much all through 2023, as contrary to what most people expected, the high-quality growth stocks that did the worst—Tech and Consumer Luxury— in the bear market of 2022, have led the bull market at 2023. That will probably continue early on for a little while, but probably fades at some point during the year and tends to switch sometime during the year. That will have to be watched more closely for more precise timing to what would become conventional value leadership. When exactly that occurs? It probably occurs as we begin to realize that the economy has been both secretly and silently, as I've written about, normalizing, and also that GDP is accelerating. So the companies that don't naturally have inherent growth qualities begin to be able to get some of the benefits of growth from the economy. That's my general view.

Now as a subset of that is I don't really see interest rates—long rates— having a big reason to move one way or the other. What will happen to short rates? Darned if I know. That's under the control of the crazy people that run central banks. And as I've always said, central bankers are crazy, and you don't try to make predictions about what crazy people will do because they're ... crazy. And the fact of the matter is that they never know what they're going to do. They never, ever know what they're going to do, even though they say this and they say that and they say the other. That's what all the things they say are very inconsistent with what they end up doing, because they don't know what they'll do. Since they don't know, you can't know. I can't know. And it also doesn't matter as much as people think. As I've written about a lot in 2023, central banking doesn't have the power that it once had for a whole series of reasons. So, long rates shouldn't have a huge move in 2023, one way or the other. Probably might move down a little, might move up a little. That's called volatility, but no real huge directional move. Short rates, I don't know? Not really very concerned.

So with that, that's basically my view of the economy. Accelerating economy. Good, but not super great stock market. Long rates, a little volatility, but not some big direction. In a world that's better still than most people right now expect it to be. If there's problems ahead, I expect them to be early in the next presidency.

Thank you very much for listening to me. I hope you found this useful. Hi, this is Ken Fisher. Subscribe to the Fisher Investments YouTube channel, if you like what you've seen. Click the bell to be notified as soon as we publish new videos.

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