S&P 500 Index Update

“Santa Claus is Coming to Town” is a great Christmas hit. Yet no one ever wrote a song called “Santa Claus is Leaving Town”…and for good reason. Reality sets in that there is a lot of work to do after a big celebration and the big man won’t be back for a whole year. The Santa Claus rally in the equity markets the last two months of the year was a wild celebration. The S&P 500® Index more than doubled its return from the first ten months of the year (10.7%) by adding another 14% in just 41 trading days to end the year with a massive annual return of 26%. The much maligned Russell 2000® Index of small cap stocks did even better since October 31st. Down 4.5% through the first 10 months of 2023, the Russell 2000® Index rallied 22% in the final two months and finished up 17% on the year.

Where do we have the most conviction? Our belief is that the narrow market experienced over the first ten months of last year continues to broaden out in 2024 as it did in the last two months [see chart below]. As opposed to the first ten months of 2023 when only 27% of stocks outperformed the S&P 500 Index, 56% of stocks outperformed in the last two months of the year. While 2023 was highlighted by the seven largest, mostly technology related stocks leading the market, we believe 2024 will see much broader participation for two reasons: 1. Valuations are significantly better outside the largest mega-cap names in the U.S. market, 2. Technology is not the only sector expected to experience strong earnings growth as sectors such as healthcare and industrials should also grow at an above market pace.

Our final message…stay in the market and own a broad array of equities as, in our opinion, there is a wider group of companies that will reward investors in 2024 than in 2023.