FOMO is high: Wall Street Braces for a Year-End Shifts in direction and strategy

Wall Street basks in recovery, but the final 11 days of 2023 hold potential shifts. Expect tax-driven sales, profit-taking, and portfolio rebalancing. While FOMO (the fear of missing) out lingers, investors have options, Cash accounts are paying a decent return if you are looking at the good returns notwithstanding the  recent run of the S&P 500.  The S&P return from 1929 was 7.2 without dividends.   Including dividends, it is around 10.1%.   Over the last 2 months, we have been significantly above the historical performance.  The S&P 500 can continue to run higher, but we should be cautious as the market is shifting to growth.  Treasuries are paying 4% for a risk-free environment.  Risk management is important in this environment.   We are looking to use pullbacks as buying opportunities.

This underlying shift under the surface toward growth will likely continue as we head into 2024 but given the almost (and oddly) euphoric reaction to the Fed’s December decision, it wouldn’t be surprising to see a short-term pullback given sentiment has gotten quite frothy.

FedEx slumped 12.4% in premarket trading Wednesday, continuing its losses from the day prior, after the company posted a disappointing revenue outlook for the fiscal year. Results for its fiscal second quarter also fell short of Wall Street’s expectations on the top and bottom lines.

The earnings season is nearing its end, with upcoming reports from General Mills and Micron Technology scheduled for Wednesday. Additionally, key economic indicators such as December’s consumer confidence and November’s existing home sales are set to be released. Furthermore, the personal consumption expenditures price index is expected this Friday.

Key points:

• Wall Street is experiencing a year-end recovery, but potential shifts may occur in the final 11 days.
• Expect year-end adjustments like tax-driven sales, profit-taking, and portfolio rebalancing.
• The market could see a short-term pullback due to:
  • Euphoric reaction to the Fed’s December decision.
  • Overheated sentiment (“frothy” market).
• While the S&P 500 can still climb, caution is advised. Cash accounts offer comparable returns to the S&P 500’s historical average (7.2%-10.1%), while Treasuries provide around a 4% risk-free environment.

Guide to Long-Term Investing