What's In Store for the Rest of 2024? Jarvis® Update March 28, 2024

The first quarter of 2024 is already in the rearview mirror. What are the major takeaways for investors? We answer that question and much more on this week's Jarvis Update. I'm your host, Brian Dress, Director of Research here at Left Brain, coming to you live from our brand spanking new conference room here at HQ, and joined as always by our CEO and Chief Investment Officer, Nolan Langford. Nolan, Welcome to the program.

Thank you, Brian, and a happy Easter weekend to you and your family.

Thank you, Nolan. Happy Easter to all the listeners. Thank you for being with us. We'd first like to ask you to like and share the video if you do find these videos useful. That certainly helps us grow the channel and find other investors just like you to bring into the Left Brain Philosophy. Also subscribe and hit the bell for notifications. That way, you know, every time we're out with these videos and we're out every other week with these. We love to interact with the viewers. We'd love to drop a comment below on any thoughts that you have on the market. We'll definitely respond. Or if you've got your answer to the question, what's your favorite Easter food at your family get-together? Before we get started, a quick preview for you. We have seen a very strong start to 2024 driven by AI and a number of other themes. We've got two topics for you as we usually do. The first is 2024 winners and losers, and then the second is expectations and projections for the rest of 2024. Before we get into the meat of the program, a couple of announcements. First of all, we'd like to ask you to sign up for the Jarvis newsletter. That way you can receive our weekly content. We're out with videos, of course, and also newsletters. Hit the link below and you can get on our mailing list. Also, our goal is working with clients to help them plan financially to live their best lives both before and after retirement. Whether or not you currently work with an advisor, we aim to be a resource for you to help you reach, reach your goals. By helping you make the right financial moves. And for the podcast listeners, we'll throw the number out for you. Give us a call at the number 630-547-3316 if you want to learn a little bit more about what we do and get a second opinion on your portfolio. And for professional investors, we've got something for you as well. Our brand new Investment Ideas service, that's 5 model portfolios that we put out, both stocks and bonds, dozens of actionable securities backed by our research. So if you've got interest in that, take a look at the link in the description. Let's do the market recap. For the year-to-date numbers, S&P 500 is up 10.8% at the time of taping here. NASDAQ up just a tick more at 11% year-to-date, and the Russell's pulling up the rear, up just 5.8%. Small caps are lagging. I wanted to mention also the Equal Weight S&P. We're going to have a chart up here for you of the S&P 500 versus the Equal Weight S&P 500, that's up 7.32%. So as you can see on the chart here, that divergence is starting to close, that gap starting to close, which means that more than just the top few stocks, stocks in the market are driving us here. And also wanted to mention the 10-year Treasury. So we came into the year with the 10-year U.S. Treasury yielding below 4% at around 3.9%, and now it's around 4.2%. Definitely a little bit of a drift higher in interest rates. Nolan, do you have any reactions to the overall index data we see year to date? And then also, how do you interpret stock strength in the face of a little bit higher interest rates than when we came into the year?

You know, every year we come into a year and it's always a different story, a different theme. Something's always working. You got something that's not working. And this year we have small caps, the Russell 2000, bringing up the rear. We expect for that to turn at some point. You'd expect for for small caps to regain some strength, especially if the economy is as strong as what the data would suggest. The other thing is the 10-year Treasury rate. You know, I think if you had to talk to us December 31st and said, hey, the, the 10-year is 3.9, by the end of the first quarter it's going to be over 4, I think at that point we would have thought that we would have had disappointing stock results because of it, because that's what's happened the last 2 years. But not the case this time. We've got stock Stock prices rising at the same time yields are rising. Just goes to tell you why we don't do macroeconomic forecasting.

Absolutely agree, Nolan. And it's definitely a great sign that the stocks are decoupling from the whole interest rate trade, and it's definitely a positive sign as we move forward into the rest of 2024. So let's move to our topics. Topic 1: Winners and losers of 2024 so far. We wanted to talk to you a little bit, first of all, at the sector level. The S&P 500's got 11 sectors. The stocks that are in the S&P 500 are categorized. The top 3 sectors so far this year, communication services, that's up about 16%. We've got information technology, not surprisingly, up 13%, one of the biggest themes of the year so far. And then a little bit more surprising, energy up a little over 12% for the year. There you've got, you know, the new economy doing well, and then you got kind of old economy energy doing well. And then on the bottom 3 sectors, Again, out of 11 sectors, just one of the sectors is down. That certainly suggests a bull market. The sector that's actually down for the year, real estate, 1.27% down. And then utilities and consumer discretionary, those are the two, the number two and number three least performing sectors. Both of those are up significantly. Nolan, any thoughts about what we're seeing here from the sector data? From my point of view, energy is definitely surprising.

It is surprising somewhat. But last year, energy did not have a great year. Sort of having a bounce back, particularly with oil back firmly over $80. You have OPEC still restricting supply. You have a healthy economy, so you expect drawdowns in inventories. So energy rising makes sense. Actually, the whole tape that you read off made sense. The bottom 3 sectors are defensives, so that tells you people are no longer looking for defense. They're looking to play offense, and it's a textbook bull, bull market at this point.

But let's talk about a little bit more granular data. We like to talk about individual businesses, individual stocks. Here on the screen are top 5 stocks for the year out of the S&P 500. One of the newest stocks in the S&P 500 is Supermicro, SMCI. That's number 1, up over 250%. Then you've got Nvidia up 80%. You got Constellation Energy up almost 60%. GE, General Electric, up about 40%, and then Deckers Outdoor up about 40%. That's another one of the brand new stocks in the S&P 500. And then on the bottom end, different types of stocks in here. Tesla is the worst performing stock in the S&P 500, down 27%. We've got Boeing, Market Access, Charter Communications, and then Warner Bros. Discovery. All those are down around 25%. Anything stick out for you, Nolan? Do You want to talk about some of these stocks we haven't really covered on these videos this year?

I think when you read off the top and bottom list, what smacks to me is rationality reentering the stock market. The stock market indeed being a market of stocks. The companies are on the bottom of the list, their businesses are challenged right now. Some of them are permanently challenged and some of them are just temporary. The ones on the top are having their days in the sun. Because their businesses are shining. You know, your top 2 were— or 2 of the top 3 were artificial intelligence plays with increasing revenue and earnings growth. So it really doesn't surprise me that, that that's the case.

This is a stock that we've started to follow in the last month or 2, Decker's Outdoor. Can you talk a little bit about what we see there?

Well, we like what we see. It's a consumer discretionary stock. A lot of the listeners will know them by their brand names. They make a shoe brand, a running brand called Hoka, and their big brand is UGGs. And, you know, UGGs is more from just a kind of an outdoor, you wear in the winter shoe brand, to more of a full-line footwear brand. Now they have slippers that you can wear at home, and they have a full line of footwear. So that's the business of Deckers, and it's just been an excellently run retailer for many, many years.

And I also want to mention, Nolan, while we're here on footwear, Nike— this is a stock that's really struggled. So clearly it's not, not just like every shoe company is doing great. Deckers is doing really well while Nike's doing really poorly. So definitely want to put that out there, and it's a name, uh, you might want to take a look at. With that, let's move into topic 2. So topic 2, previewing the rest of 2024. No, we can do a lot of looking back, but what we really need to do as investors is look forward and find the newest winners of the year. Markets have had a really strong start to 2024. So I'll ask you a simple question here. Do you expect it to continue?

Yes, but not in a straight line. Um, there's reasons that we're up in the first quarter, and this is a really good positive return first quarter. There's certainly reasons for it, economic and otherwise. There's a lot of things in front of us that I think are going to be catalysts. You know, in the fall we have the election coming, and I that's generally bullish for markets. And then we have earnings that are forthcoming, and earnings expectations have been reset lower. So I think companies will do a really good job of meeting earnings expectations and beating earnings expectations. And if they do, I expect positive stock momentum. So I think those are the positives. But we know the market, like success, doesn't move in a straight line. So we are going to get a correction at some point. We just don't know how long and how much the pullback is going to be, but we still expect a really good year.

Nolan, so we've talked a lot here about the themes of AI, of course, cybersecurity, digital transformation. First question from that point of view is, do you expect continued strength in those areas over the next few years? And then are there other areas that you think have a chance to overperform as the rest of this year unfolds, then the next couple, 3, 4, 5 years?

There's a couple of areas that really have my attention. One of them is the travel industry, and in particular the cruise lines. Anybody that's been watching us for any number of months or years, we've been talking about the cruise lines for, for a while. We originally started talking about them in the bond market when they had to issue bonds to stave off trouble when the cruises couldn't cruise during COVID Now the cruise ships are back, and these companies that report, the big two, Carnival and Royal Caribbean have both said that the ships are fuller today than they ever have been. They're booking earlier in the sale season than they have been, and prices are higher than they have been. And if you take a look at the cruise line stocks, you know, uh, Royal Caribbean has done well, but a company like Carnival is nowhere near its former high. So we— I expect recovery there. Business trends continue to be powerful. And demographic trends are behind them. So that's an area that I do think will continue. I do think the AI theme is so early. You know, right now we've just seen winners, basically we've seen a couple of winners and they've all been on the hardware side. But as companies figure out how to use this AI, I think the applications, the software businesses, I think they're gonna pick up the mantle and I think you're gonna start to see a bull run in those businesses. I think the digital transformation, you know, where companies have to digitize themselves from being a manual to a digital process and being able to interface with customers via the internet, it was disrupted somewhat during COVID or the post-COVID years, but now it's back, and I think it's inevitable. So I think that trend also continues. And then finally, another area that we're going to be watching closely is those weight loss drugs, GLP-1. You know, it's a multi-billion dollar market. It's just getting started, and there's a lot of health benefits to— you know, we have a problem with obesity around the world, but especially here in the U.S., and these drugs look to be a solution. And we're early in the growth curve, so this could be just a huge generational opportunity there, and another technology with also health and societal benefits. So this will be another area to look at for future profits.

Definitely agree with you, Nolan, on all those fronts. We've seen the AI stocks and also the stocks associated with the GLP-1 drugs. They've done really well. I'm glad you brought out the travel and the cruise industry because what it really is is a great opportunity because what we look for is stock prices that are going lower in businesses that are improving. That's really what the essence of opportunity is. So we'll be looking at the travel stocks and specifically the cruise stocks over the next few months. And see if that theme follows through. We like to give practical tips to investors out there, ways they can take advantage of what they're seeing in the markets. Do you have any words of wisdom for clients, especially those who are still sitting on big, big amounts of cash, kind of waiting for the best opportunity?

I would say you need to sort of take some action in a fairly time-sensitive way. You know, a lot of our clients tend to be executives. I know it's bonus season right now, so I know clients are getting bonuses, stock options are vesting, and a lot of times these working busy professionals, it just escapes them because, you know, life happens. But I would say if we are in a bull market, we're in the early ages of— early stages of a bull market. Bull markets tend to last a while, but the powerful movements tend to happen at the beginning, so you don't want to miss it. And right now there's still a lot of caution, so we think there's still room to go. You know, if I have money sitting there and it's not earmarked and I just hadn't done anything with it because I've been busy. I try to get unbusy for a little bit and connect with your advisor and get the money to get the money to work so you can put some numbers on the board early in the bull market.

Totally agree with that, Nolan. If we have clients out there that are sitting on cash, definitely let's have a conversation about the best place to maybe put that to work. If you don't work with us, we're certainly here. We've got plenty of ideas. If you've got, if you got cash that you're sitting on the sidelines and you're just looking for a place for it to live. With that being said, Nolan, we'll close it out there. We're going to say happy Easter to all the folks out there. Hopefully enjoy the weekend, get together with family. Nolan, any last thoughts?

My thoughts are all about Easter weekend downtown Chicago. I'm really looking forward to it. Excellent.

Well, we appreciate everyone for listening. And being with us over the last couple of years as we've done these videos. And we'll see you again next time.

Good luck on your brackets.