Stocks near record highs with just 1 trading day left in 2023 12/29/23

0:02Live from the NASDAQ market site right in the heart of New York City's Times Square. almost New Year's, guys. This is Fast Money. Here's what's on tap tonight. Magnificent or mediocre? How would you rate 2023 on Wall Street? AI boomed, tech dazzled, but was the rest of the market nothing to write home about? We'll debate that. Plus, the flow show, a look at where investors put their money to work this year. What can the ETF inflows tell us about the mood of the market now and in 2024? And then later on, our charts of the year, from retail to chips to crypto and beyond. The traders break out their picks for 2023 and then look ahead to the new year.

0:41I'm Dominic Chiu. And for Melissa Lee tonight, coming to you from Studio B at the NASDAQ market site on the desk tonight, Steve Grasso, Carter Worth, Julie Beal and Bono and Ison. And we begin with a winning year officially now in the books, a mostly mellow day on Wall Street with the major averages. As you can see, they're all slightly lower. But for the year, the Dow ending just below record highs, up nearly 14 percent. And if that wasn't enough, the S &P 500 within a whisper of its record high and the Nasdaq seeing its best yearly percentage gain in 20 years, yet it's still 6 percent below its all time closing high.

1:19One of 2023's most notable performances has been the Nasdaq 100, the big tech index, having its best year since the dot-com bubble all the way back in 1999, believe it or not, surging by almost 54%. The Magnificent Seven driving a massive amount of gains in the NASDAQ 100. NVIDIA rallying 239%. Meta platforms ripping 194%. Tesla jumping 102%. And Amazon up a paltry 81%. Google, Microsoft, Apple also having big years up about 50 % or more for those mega cap names. It's a year that exceeded a lot of expectations. So where can the markets go from here, given that setup? Steve Grasso, since you're right here on my right-hand side, we'll start with you.

2:05Right here on the right-hand side. So I think the knee-jerk reaction is to think the market has pulled forward a lot of performance, so maybe it's due for a correction. So that's the knee-jerk reaction. So I always do the reverse of the reverse, so I'm not sure where that leads me. You've confused me already. Exactly, so I confuse myself a lot. So I think that if you look back on performance for January, January is not a terrible month for the markets either. So I want to bask a little bit in this bull market blush, if you will, maybe a couple of months more. I do think we're going to get a test.

2:41The test might be middle of January. It might not be. But I don't think we're looking at a cataclysmic fall off the cliff. This is also an election year cycle. So that's sort of the win behind the bulls. You have a lot of stuff that's going right. They don't have to. Powell does not have to cut. He just doesn't have to raise again. He's got to cut at a certain point. But I think that cut's going to take place probably mid-year where we start to cut. Not in March. Because there is a thought that it's going to happen as early as March. Yeah, and the reason why I think it's mid-year versus March is that they have to stop QT.

3:16And I think they're slated to stop QT in June or so. so that would line up or else it would just confuse the markets, cutting on one, raising on the other. All right, Bono, and if you take a look at the narrative around whether or not the things have been pulled forward, what do you think? Are we already giving up some of those gains because we've gotten them already in the last two months? Well, I think it falls into two different buckets. So in terms of earnings expectations and earnings growth, I'm not sure that's necessarily been pulled forward. We really didn't have much earnings growth this year.

3:47And so looking for 10, 12, maybe slightly higher earnings growth, I think perhaps, you know, that that's pretty reasonable. What I do think has been pulled forward, however, is the rate story. Sorry, Steve. We're usually seeing eye to eye on a lot of these things. In this one, I think I'm on the reverse of your reverse reverse. So, you know, I think, you know, the March cuts are priced in terms of the Fed fund cycle. And it's not just about whether or not they cut. It's about the extent of cuts. And as some of our guests have mentioned, this may be 75 to 125 bps overdone. So I think that has been pulled forward.

4:25And so the macro setup, I think, is a bit too rosy. I'm not really sure we have much room for anything to go wrong, for consumer spending to slow down, for housing prices to have any type of hiccups or for mortgage rates to back up. So all of those things, you know, you've seen credit card balances over a trillion. So I think any type of shakeup in the consumer backdrop might create and the rate backdrop might create hiccups and challenges and headwinds for us in 2024. You know, Julie, what's interesting about that macro backdrop is the rate cutting expectation is what arguably has powered a lot of the small cap move in the last two or three months of the year.

5:03Do you think that the small caps still need that rate cutting narrative to continue to try to play catch up with the large caps? Yeah, absolutely. You need that to happen in order for those to kind of maintain that they always have a little bit of a gap to a large cap, but you really want to have some kind of tailwind in terms of interest rates to kind of support these businesses. And it's pretty dependent on the soft landing as well. Most of them are pretty cyclical, pretty sensitive. You can find very high quality businesses in this space, but if you want to be an investor broadly in small cap, you better hope that everything goes right.

5:38I agree with Bonwin. Expectations are really high. If there is any kind of bobble, I think the market could have a pretty severe correction. Carter, have there been any signs of iffiness in the market? So let's talk about the concept of pull forward, right? That only applies to the S &P, perhaps up 24%. If you look at the Russell 2000, to Joe's point, small caps have lagged. It's up only 15 % year to date, so there's not a lot of pull forward. Or consider this. The Russell 3000 represents 98 % of the investable capital of the United States. The median stock was up eight. So what pulled forward?

6:14It's just the big names that have driven so much. In fact, of the 11 sectors in the S &P, only three outperformed the market. So it's pulled forward in certain areas, but a whole lot of other things are not pulled forward at all. Now, does that set you up for this catch-up trade everywhere else in the market besides the magnificent seven or the top 10 in the S &P? Right. So the real question is, take the Russell 2000. All stocks added up are basically the same market cap as about Apple. So little money is required to move the bottom 2000. I definitely think that's the play. If one had to do one simple, are you overweight or underweight, small versus large, I would go with small.

6:53Steve, what do you think? Is this one of those scenarios where it's going to be large versus small all over again in 2024? I don't know. I battle with that because we've had it's it's difficult. I think I think you can have the Russell outperform for certain amounts of time. But I don't think that's going to be the theme, because with passive investing, there's so much money that's drawn to those larger cap names that you can't help push those names forward and leave the others behind. But when you look at the Russell, 40 percent of the Russell 2000 is unprofitable. So to Julie's point, you need rates to stay low for them to have an equal shot, you know, a bite at the bull, if you will.

7:34So I don't know if that's going to be the theme for the year. We saw when the bank when the regional banks collapsed back back in 2023, which is early earlier on. What was it in in the spring of it? Basically, we saw the safe haven trade and then we saw the growth trade. So it's the tech is large cap tech is for the is the trade for all seasons. So I think it will always be there. Maybe the Russell can have a little bit of a day in the sun, but I don't think it's a theme. The interest rate complex is always going to be a focus because of the way it influences valuations. I wonder, Bono, when if you take a look at the valuations of the market right now, there are those who believe that the market is trading at the average forward price to earnings multiple it has over the last five years.

8:20So it's fairly valued. Others say that you've got to look at the interest rate picture as well. Is the market fundamentally valued?

8:29I would say it's fully valued, certainly. I think around 19, maybe 19 and a quarter times. I don't think you can argue that it's undervalued by any stretch of the imagination. I think you can, like the other panelists have said, there are pockets, you know, that 19 times is a blend. So there are certainly pockets that are quite expensive. You know, if we're looking at the apples of the world, for example, within that magnificent seven, I think that's very different than looking at some of the banks, for example, that are trading at eight times, for example. So I just don't think it's a monolithic situation.

9:02In terms of the S &P historical average, sure, over five years or so or three or five years, 19 times seems to be in line. Over a longer period of time, I would argue that's on the rich side. All right, Julie, any signs of stress right now that you're seeing in credit markets that would lead you to believe that we are due for some kind of a pause or a downturn in the next several months? For sure. Anyone who has variable rate interest debt, so, you know, auto, those guys have seen more delinquencies rising. You know, mortgage is still quite stable, but that's because everyone locked in really low rates.

9:34So I think that is the place to kind of keep paying attention to on the health of the consumer. And then obviously the office market is the place that we're all really worried about how that's going to how that's going to pan out. And of course, we're in an office building right now, guys. Our next guest is out with a new note today saying that the markets could kick off 2024 with a short term pullback. Let's bring in new wedge wealth's Ben Emmons, a guy who casts an eye on macro all the time. Ben, you heard the conversation on the desk. I wonder what you think about that overall big picture for the global economy.

10:04Is it supportive? And why do you think we're due for a pullback? Yeah, I would be with more of the others about this pullback. You know, there's several signs, I think, Tom, for the short term. If you look at the RSI indicator, the S &P, the NASDAQ and the Russell are all overbought on that indicator, but they mostly are overbought as much as they were overbought during the 2020-21, you know, let's say bubble moment. And they even have overbought for a longer period of time. You know, I think it's almost like a month and a half now. So that's quite stretched. And if you then take the story to interest rates that we're just discussing, the bond market, in my calculations, probably priced more like 75 basis points of excess rate cuts.

10:48It almost looks like the bond market is priced for this perfect scenario of a second Fed pivot to faster, deeper cuts. I think that's the tension as we're getting into the new year. We have a packed agenda of big data. the economy shows some sign of acceleration. And GDP now went from 1.25 % to 2.25 % over the last sort of four weeks. So there's some sort of acceleration going on. So I think interest rates are primed to pick up a little bit from here and then take back that overbought condition on the equity indices. What part of the market is going to be the most vulnerable to that pullback? Is it going to be the stocks led to the upside?

11:24And if that's the case, then which stocks do you put on the list in case it's just a dip to buy? So I found notable, Dom, that if you look at small caps, right, and you plot that against the junk market, you know, take the J &K ETF against the Russell 2000 ETF, since the end of October, it's just exactly straight line up, more like a lockstep. So as Julie says too, and Steve says, these sectors are highly interest rate sensitive. I would almost call them like they're sensitive to relief of interest rates. So if you get a bit of a backup in rates, I would think that there's where you see the first real correction.

12:02Seems like kind of a bit of a frothy moment there in each market. On the other hand, you know, the big cap, the mega cap are probably going to stay in a good trend here because that's really about earnings. And I don't see these earnings being downgraded so quickly just because we're getting a short correction in rates. So, Ben, when you look at overbought, obviously overbought, a stock can be overbought, the market can be overbought and it could work that off. But as far as that second pivot, I think the second pivot is going to come from inflation falling a lot quicker. Have you calculated that?

12:38Do you think that could fall in a precipitous fashion and leave Powell sort of trying to catch up? I think it's a good point, Steve, in the sense that if you look at the PCE deflator that came out the other day, in that basket, there's deflation now. And, you know, there's about what I calculated about 10, 15 percent of the index is in a deflation for the last sort of six months. A lot of these categories are influenced by supply. So it's maybe to an extent not so surprising, but it's telling. So say that that deflation starts spreading further in the core PC deflator. Then you get the scenario we saw back in 2022.

13:16The Fed is, again, behind the curve, ironically, having to come forward with more rate cuts faster. But I think at this moment where we are right now, you know, we're not yet in that really accelerated down move in inflation yet. So I think it probably is going to be something more of the second half of these rate cuts starting. Again, idea that the economy stays on its feet and inflation just continues to moderate giving the Fed room for some rate cuts. So, Ben, in terms of gold, obviously something I know you like quite a bit. Here we are two years later from the peak in the S &P. S &P is basically unchanged, and yet gold's up some 14%, one of the best assets over that two-year period.

13:56Obviously, you're sanguine on gold. You think gold's going higher this year. If you had to pick gold versus the S &P for the next 12 months, which do you prefer? Well, gold is interesting, Carter, because it is this asset that can outperform in an environment where there's uncertainty, but it can also outperform in an environment where you have easing conditions. And that's actually what's happening currently. The last sort of month, as we talked of the previous show, gold has had a reasonable performance here in December. It actually broke out to a record high when we talked about it. I think this has more scope.

14:30I mean, if 2024 is a year where a lot of people do expect a fair bit of uncertainty, it probably will fuel gold. On the other hand, it's this rate cut story, as we talked with Steve about. Like, yeah, if you get accelerated rate cuts, then gold will really go a lot higher. So to me, gold is a really interesting asset for 2024 as a diversification portfolio. I think it could add, in that sense, value. Makes a lot of sense. Hi, Ben. Bonoan here. Happy holidays to you. So a quick question. In terms of the dollar, it seems like it's made pretty much a full round trip over the past year or so. Can you kind of give us a bit of insight into what you're looking in terms of dollar strength or weakness, and then what those implications are for possible offshore investing opportunities?

15:14Yeah, the dollar has made this move now towards closer to a$100 on the dollar index. And if you look at that move, it's really the peripheral currencies like Norwegian Krona and Kiwi and those type of currencies that have really been driving the move. But when I really think about the dollar getting weaker from here, you have to pay attention to the Japanese yen. Now we're getting signals from the BOJ governor, Ueda, that they are ready to make a move on rates sometime in the next quarter. and Japan has been this story of really good stock market but with a really weak currency. So the currency has a lot of scope to rally and I think that will be a big push for the dollar to get weaker.

15:56In addition that you do have the story in Europe as in there's some mild recession happening in certain countries like Germany but yet the ECB is not so keen to pull the trigger on these rate cuts faster than the Fed does so the euro will continue to have a bit of a lift here. So to me, when the dollar index gets below 100, the history of that shows that commodity prices in emerging markets start to really lift up. So I think the dollar index has more scope to go down. And I think really, if you look at then emerging markets, to sum it up, is that emerging market bonds really look attractive in that sense.

16:30You know, they have undervalued currencies and higher rates than here in the U.S. All right, Ben, before we let you go, what's the key part of the stock market you're going to watch in 2024? What's the big storyline you'll be keying on? So it's definitely the cyclical part of the market, Don, because if you think about the soft landing of the economy and so much of that now priced in the net sector, you think of small caps, you think of consumer staples and consumer discretionary. I think this is where the big story will be. If the soft landing doesn't pan out, that part of the market will really underperform.

17:05All right. Let's end it right there. Ben Emmons, thank you very much, and kind of send it around here. And Happy New Year, Ben, for you. All right, let's trade this, guys. Carter, we heard the big conversation right now. Is there a key part of the market you think that's poised, given the convo we just had, with regard to 2024's outperformance story? I mean, I think the bet is, again, if one is any bullish at all, I think it has to be small cup. The divergence is getting to be at or near a record, and we've had recent outperformance. But my favorite asset class for 2024 is gold. Hard stop. All right.

17:39Gold's the trade. Still to come on the show. We'll go inside the flow show. How much did money did investors pile into the market and where did they put it? That breakdown is coming up straight ahead. But first, the consumer showed up and showed out this year. Their spending spree fueling big gains in the discretionary sector in 2023. Is 2024 the year they tap out or can you still make money betting on the consumer? We'll debate when Fast Money returns. We're back in two. You're watching Fast Money here on CNBC. We'll be right back.

18:15Welcome back to Fast Money. We're recognizing the big spenders out there who are playing a major role in the historic year for the markets. The consumer discretionary sector rallying almost 40 percent this year. It's right behind only technology and communication services on a year-to-date basis performance. Tesla and Amazon are among the biggest winners in the group by far. So what are the odds this consumer trend can keep spending and keep going in 2024? Bono, and we'll start with you. Yeah, I mean, you mentioned a good point. If you look at Amazon and Tesla, I think that's about 41 or 42 percent of that XLY.

18:55And so I do think there's been a lot of performance that's been driven from just that tandem of stocks. If you look a bit broader, I think, you know, really for all the people, myself included, that were calling for a recession this year, it made a lot of sense to be short the consumer and that hasn't happened. And so you tend to get that type of catch up trade. I also think it makes a bit of sense to perhaps look at XRT as opposed to just X or Y because of the weighting issues that I just mentioned. If you look there, you're looking at about half of the performance or around 20%. So I think that might give you a bit more insight into a bit more true insight into the health of the consumer and what's likely to come from the second half of, sorry, the first half of 2024, as perhaps there are more challenges that are realized.

19:42Julie, what do you think? Is the consumer going to power the U.S. economy and market again in 2024? I mean, the consumer powers our economy regardless of whatever is happening, right? It's thanks to the consumer, the health and their willingness really to spend their incremental dollar that we are where we are. My concern continues to be that we just don't have the level of cushion that we did in the last two years. November marks two years that the savings rate has been below the long-term average. And so we all know that eventually the music has to stop. People eventually have to give themselves a little more cushion.

20:15And so if there's any weakness in employment data, again, people don't have that cushion and that's going to impact discretionary spend the most. So that's a place that I'm really concerned. And I don't think it really even matters by cohort or income level, right? You look at the retailers and you saw retailers that were at the same level, high end, low end, whatever. Some did well, some didn't. You have to provide value now. You really have to execute. All right, Steve. Speaking of cushion, gasoline prices have been a bit of a tailwind. They've been coming down incrementally. That should be helpful for that discretionary spending that Julie just spoke about?

20:51The U.S. is at record production right now. And the Saudis tried to support that price. OPEC tried to have cuts that were supportive of energy prices. It didn't work. Whenever the Saudis or whenever the OPEC cuts, you should be selling oil, not buying it. I think it's always counterintuitive. And I think the big piece that we're missing is where I started. The U.S. is producing more than anyone thought they would produce under a Biden administration. It is an election year cycle. We need oil to stay low. Oil will most likely stay low or gas will stay low. But getting back to what Julie said, there was so much money thrown at the consumer during the pandemic.

21:36Yes, we're seeing that come in a little bit, but they still have that cushion. And as long as unemployment rate stays around historic lows, as long as the consumer has a job, as long as we stay really employed in this country, I don't think you're going to see a real test here. There's been employment hoarding, job hoarding. Nobody wants to fire anyone unless you're in a tech company where you're forced to lay off because you've ramped up employment so much over the pandemic. As long as you have a job, I think the consumer's okay. All right. There's a lot more fast money to come. So here's what's coming up next.

22:40You're watching Fast Money Live from the NASDAQ Market Site in Times Square. We're back right after this.

22:52Welcome back to Fast Money. Gold shining bright. The precious metal ending the day slightly lower, but it is closing out the year up more than 13%. Its first positive year in three. And this has investors turn away from U.S. dollar on weakness. and Carter, that currency and gold story is kind of intermingled. Right. So there's two kinds of relationships, inverse and direct. And there is this overarching theme that there's an inverse relationship between the dollar and gold bullion. But that's a shorter term phenomenon. And that can be the case on a rolling three, six month basis. But the main message from gold here is that it has been contending with the prospects of a breakout for three years.

23:32In fact, gold is exactly where it was, 2 ,075 an ounce plus minus, in late 2020. And so there is an adage or an expression, the more authority a level has, the more authoritative the resolution. This level, in effect, for three years, and we just are probing new all-time highs. It's just the beginning of what should be a multi-year and very important move. And again, I would point out that if the S &P is the big thing and we are now back to Unch two years later, how did gold do versus the S &P 500 since the all-time high? It killed it. 14 % versus Unch over the last two years. All right, Bono, and what do we think about that gold trade?

24:12Yeah, I think the fundamentals stack up and support Carter's technical view. I mean, he also mentions the fundamentals, but just like adding in the other aspect of it. Essentially, you have dollar weakness, which I think is supportive. You have uncertainty coming forward, whether or not you're a bull or a bear. You have to admit that there is some uncertainty in terms of rates, the extent of cuts, and the ability for the consumer to continue to spend. And I think those two things, as well as a technical picture, support GLD or however else you want to invest in gold. Julie, is it a part of any portfolio allocation that you're looking at right now, precious metals in general, gold, maybe even silver these days?