Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, USA, January 9, 2024.
Brendan Mcdermid | Reuters
The crystal ball is cloudy this year, my friends. It used to be easier to make my annual list of predictions, even if I turned out to be wrong. However, the start of 2024 is proving more difficult when thinking about what could happen in the markets, economy and business.
After a wonderfully surprising global stock market boom in 2023, this year could be anyone's guess. Oh, and I'm told there's an election in November that could further disrupt the market.
But as our tagline for Last Call goes, we need to buckle up and get thinking about the new year. And remember, these are not actionable investment recommendations, but rather ideas and thoughts that stimulate debate and discussion, just as we have done for the last decade or so.
(To see how I did on my 2023 predictions, you can click here.)
While there have been five ideas in the past, this year we are going “four for 24.”
Prediction #4: (Some) solar flares return
First, we could also predict that some wind, solar, or battery stocks will experience bankruptcies. That's likely because balance sheets are loaded with debt, interest rates are still high, and demand simply isn't there in some markets. It was a difficult year for many investors in the “industry of the future”.
SolarEdge lost 67% and giant NextEra Energy Partners lost a third of its market value. The Invesco Solar ETF (TAN) had fallen by 30%.
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SolarEdge Technologies (TAN)
It was painful. Wind power companies may struggle with high costs and environmental resilience, but solar energy is a different story. Solar energy could soon surpass coal as a source of global electricity generation. Utility-scale solar projects are increasing worldwide, and Wall Street firm TD Cowen says to focus on companies with such large-scale projects. Specifically, the company likes it First Solar (FSLR), calling it a top pick in 2024. You're not alone. The average price target of nearly 30 analysts covering First Solar is $231.56, more than 30% above the current price, according to FactSet. Too much money is being put into the hunt for solar projects, someone has to win. Choose your solar spots.
Where I could be wrong: Interest rates are moving in the wrong direction. The already slow government approval process is getting worse and affecting new projects. Investors are abandoning “new” energy. Political backlash if former man wins back White House.
Prediction #3: Brazil will outperform the US market
“Brazil is the country of the future. Always has been and always will be.”
That’s the old “joke” about investing in Brazil. 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 from this and even outperform the US market.
Unemployment is below 7%. High for us, but down compared to almost 14% pre-pandemic. Brazil also relies heavily on raw materials. It is a huge producer of soybeans, iron ore, coffee, sugar and more. The big story, however, is oil. Brazil is quietly becoming an oil superpower, producing more than 3.5 million barrels of oil per day and heading towards 4 million. Check out the iShares MSCI Brazil (EWZ) ETF as deputy.
Where I could be wrong: If the US dollar rises, it could ruin the commodity story. Or when oil prices fall. Brazil also had a good 2023, so one wonders if all the market juice has been squeezed.
Prediction #2: Oil and natural gas will end flat to falling
Yes, I mean lower… for both oil and gas. Or maybe they end up flat at best. This may seem surprising considering that most of the views appear to be bullish. But that was also the case last year and the Bulls were put under a bit of pressure.
Here are the considerations for 2024: Global oil demand will grow, but given China's ongoing economic woes, it may rise less than some expect. The world's oil reserves are now plentiful. Production here is over 13 million barrels per day and Brazil and Guyana are emerging stars in oil production, with Brazil potentially reaching 4 million barrels per day in the near future (see: Forecast #3).
Russia remains resilient in global markets despite sanctions, and OPEC may have done most it could to keep its members and allies' production levels lower to balance global markets. There is also a potentially new development around China: the country could try to increase its own shale oil production. China imports tons of oil and natural gas, and Citigroup points out that China is more likely to become a local oil producer to support the country's national security concerns.
Where I could be wrong: The situation in the Middle East is deteriorating, OPEC+ or Saudi Arabia are further cutting production to support prices, and global demand is suddenly booming.
Prediction #1: Small caps beat the S&P 500
2023 was the year that mega-cap stocks changed. They were big and getting bigger, especially the so-called “Magnificent 7” (I hate the name). These Wall Street elites may be successful again, but there are plenty of other great companies out there. Undoubtedly, some are extremely unloved small-cap stocks. This year will hopefully be the year that things broaden out and investors return to the rest of the market.
All runs end at some point and new money has to go somewhere.
Where I Could Be Wrong: Investors could care less about valuation and just keep buying Mag 7 and other monster cap stocks. A slowdown in the US economy would also hit smaller stocks harder.
(Watch Brian Sullivan on CNBC's “Last Call,” Monday through Friday at 7 p.m.)