🎙️ Party Like It's 1999

Chasing the rally? The S&P 500 ETF (ticker: SPY) drew over $40 billion in inflows this month, the biggest monthly haul since it began trading in 1993.

And yet, there’s still a ton of money in cash and cash equivalents like money market funds.

💭 As you’ll see below, people keep piling into the Magnificent 7/Enormous 8 tech stocks, which beat the broader market by a wide margin this year.

— Matthew & Shawn

Here’s the rundown for 2023:

Today, we'll discuss the three biggest stories in markets:

• Nasdaq closes out best year since 1999

• Hopes for lower gas prices in 2024

• Meet the man who will succeed Warren Buffett

All this, and more, in just 5 minutes to read.

CHART(S) OF THE DAY

IN THE NEWS

📈 Nasdaq 100 Closes Out Best Year Since 1999

The Nasdaq 100 is partying like it’s 1999.

The tech-heavy index hummed this year for a 56% gain, outpacing even its 2009 recovery year and reliving its dot-com bubble glory days. The S&P 500 didn’t do too badly this year either and closed Friday near its all-time high. 

Just like that, stocks bounced back from their worst year since 2008 with one of their best years in decades, mostly on evidence that inflation is falling and the Fed is done hiking rates. Look at global bonds, which finished their biggest two-month gain on record. 

• “The notion that the major central banks have surely done enough to quell the inflationary surge of 2022-23 is powering the rally,” noted one chief investment officer. “It’s not hard to imagine new things for the markets to be concerned by, but for now, there’s not much news and not a lot of sellers.”
  

• You might remember that stocks surged in the first half but cooled off into October. By Halloween, gains weren’t nearly as robust. But a strong November-December rally iced the cake.
  

• From Nvidia to Microsoft to Meta and Alphabet, the seven-largest U.S. tech stocks drove more than 63% of the rally. The Magnificent 7 is expected to post 22% earnings growth in 2024, twice the S&P 500, per Bloomberg. 

What to know: Numerous stocks gained 100%-plus for the year, but less than 30% of S&P 500 companies outpaced the index, which is much less than the average (48.7%). 

• Meanwhile, falling yields drove the dollar lower in 2023. The greenback finished its worst year since 2020, mostly on the bet that the Fed will loosen policy next year.
  

• U.S. consumers are still spending, as evidenced by the monthly data and record Black Friday sales. The economic data is still strong, and unemployment is near all-time lows at 3.7%.
  

• The Nasdaq’s big winners: Nvidia (247%), Meta (184%), and Tesla (130%). Many of them fell by over 50% in 2022.

Why it matters:

Few saw this rally coming, and the first-half rally alone caught many Wall Streeters way offside. 

It wasn’t just stocks: Prices of assets rose, from gold to bitcoin to corporate bonds. The S&P 500 is on a nine-week winning streak, its longest such rally in 20 years. 

• “When everybody’s on the same side of the boat, it is time to look to the other side,” the veteran investor Leon Cooperman commented this week. “I’ll be the first to admit, the stock market exceeded my expectations.”

To be sure, investors could be too optimistic into 2024. Is the market overheated and due for a pause? Who knows. If 2022 and 2023 taught us anything, it’s the challenge of accurately predicting what markets will do next.

Read more

TOGETHER WITH THE INTELLIGENCE AGE

The Intelligence Age: The AI Newsletter for Business Leaders.

Get a non-technical, no-hubris breakdown of what’s happening in AI and what it means for your business.

Join 51,000+ readers now.

⛽️ Hopes for Lower Gas Prices in 2024

It’s probably a safe bet to say you’re hoping for lower fuel prices next year — who doesn’t like paying less at the pump? Two straight years of falling gas prices could actually happen, though, as surpluses of gasoline supplies weigh on prices.

The average cost across the U.S. for a gallon of gas will drop another 13 cents next year to $3.38 a gallon, according to GasBuddy’s annual outlook.

• The U.S. Energy Information Administration (EIA) sees an even bigger drop of 17 cents per gallon.

It wasn’t that long ago that average gas prices nationwide were north of $5, helping inflation reach multi-decade highs. Now, gas prices have the opposite effect, offsetting price increases in other areas.

Which states have the lowest prices on average? According to USA Today:

• Texas, at $2.60
  

• Mississippi, at $2.70
  

• Louisiana, at $2.71

The highest?

• California, at $4.70
  

• Hawaii, at $4.70
  

• Washington, at $4.26

Why it matters:

While lower gas prices do put more cash in people’s pockets, potentially incentivizing more spending that can fend off a recession, the psychological component is just as, or even more so, important.

The everywhere price: Gas prices are arguably the most widely observed price that affects everyone directly or indirectly. Most know the approximate price of gas off the top of their heads, and changes in its prices can disproportionately impact how people feel about the economy — few things are as widely used and have big, flashing roadside signs broadcasting price fluctuations.

• EIA data shows that gasoline supplies have been accumulating rapidly since mid-November, adding some 10 million barrels of gasoline into storage.
  

• Said one AAA spokesperson, "More than half of all U.S. fuel locations have gasoline below $3 per gallon. By the end of the year, the national average may dip that low as well."

A warmer winter, thanks to El Niño weather patterns, has reduced global demand for crude oil and its derivative refined products, particularly for use in heating homes.

• That, plus less demand generally in the wintertime as people drive less (fewer road trips to the beach) and housing construction typically slows, have suppressed price increases.

Read more

MORE HEADLINES

💰 Powerball jackpot approaching $800 million before Saturday drawing

💬 America sees the slowest population growth since the Great Depression

📆 Biggest work trends of 2023

🏥 Study finds that private equity ownership is bad for hospitals’ health

🚀 U.S military’s space plane blasts off on another years-long secret mission

🤕 Chinese stocks were 2023’s big loser. Oil also had a bad year.

🤔 Preparing for a Berkshire Without Warren Buffett

At 93, Warren Buffett is still going strong, with no plans to retire or call it quits. 

But Charlie Munger’s recent death re-emphasizes many peoples' questions: What happens to the eighth-most valuable U.S. company when the man who built it is no longer around? 

Meet Greg Abel, Buffett’s hand-picked successor, a 61-year-old energy veteran and Canada native who keeps a low profile while living in Des Moines, Iowa. He travels to Omaha weekly via a short 15-minute flight and tries to avoid the cameras — a much easier task in Iowa than in, say, New York, Los Angeles, or Miami. 

You might catch Abel at the Iowa State Fair, his favorite dive bar, or his son’s hockey games, where he is an assistant coach, but he’s not nearly as public as Buffett. 

Background: Abel, a native of Edmonton, Canada, came to Berkshire Hathaway when it acquired MidAmerican Energy Holdings in 2000. He leads Berkshire Hathaway's noninsurance companies, including the BNSF railway. 

• Buffett characterized the energy business as one of "four giants" in the Berkshire portfolio, and Abel is a proponent of and investor in wind energy. Abel also oversees Berkshire’s businesses from building materials to chemicals, footwear, and candy.
  

• In 2021, Buffett named Abel his successor after promoting him in 2018.
  

• “Greg will be more successful than I have been, and if I said otherwise, my nose would grow,” Buffett said recently. 

What to know: Buffett is Berkshire’s CEO, chairman, and investment chief. When he’s done — whether next year or in a decade — his duties will go to several individuals, including Abel. 

• Money managers Ted Weschler and Todd Combs are expected to take over the big investment portfolio at Berkshire, which includes massive stakes in Apple, Coca-Cola, and American Express. But all eyes will be on Abel when his time comes.
  

• “He’s still a numbers guy and understands the language of business as well as anyone,” Ron Olson, a longtime Berkshire director, said of Abel. “But he loves to learn.”
  

• “He’s no Warren Buffett,” said a friend. “But neither is anyone else.”

Why it matters:

Berkshire Hathaway is one of the world’s most successful conglomerates, and Buffett is the world’s most famous investor. 

The company, whose stock reached an all-time high this year, has a market capitalization of $780 billion. Analysts expect its post-Buffett future to center on driving “efficiencies and earnings growth” rather than as an investment company. 

• Its Class A shares hit a high of ~$563,000 in September. Class B shares peaked in September at $370.

Read more about Abel here or check out the full Wall Street Journal profile

QUICK POLL

Yesterday, we asked: Have you ever used a pay now, pay later service?

—Someone who voted “yes” wrote: “Nothing new. I bought appliances that way back in the 1970s. Also, I pay my credit card bill in full every month.”

— A critic said the services are like “dangling candy in front of a baby.”

—Added another reader: “My father taught me, if I can not afford to pay for it in cash, don’t buy it.”

See you next time!

That's it for today on We Study Markets!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Use the promo code STOCKS15 at checkout for 15% off our popular course “How To Get Started With Stocks.”

Advertise with us.

Follow us on Twitter.

Keep an eye on your inbox for our newsletters on weekdays around 6pm EST and on weekends. If you have any feedback for us, simply respond to this email.

You can also leave your comments/suggestions/feedback anonymously here.