🤔 The Wealth Effect: A Savior Or A Problem?

What’s on the Menu 🍴

With only a week left in the year, it’s time to get prepared for what’s shaping up to be a volatile 2024…

So today, we’re reviewing this year’s action and helping you get ready to grow your dough in the coming quarters!

Let’s go:

• Will There Be a Hangover After 2023’s Stock Surge? 🤕

• 3 Crypto Narratives to Watch in 2024 🧐

• The Wealth Effect: A Savior Or A Problem? 🤔

Today’s newsletter is a 3 minute read.

Will There Be a Hangover After
2023’s Stock Surge? 🤕

With the Nasdaq composite index up 42% and the Nasdaq-100 index up 50% year-to-date, many investors are asking what that means for tech stock returns in 2024.

Our intuition might tell us that we should expect a weaker year to follow…

But what does the data tell us?

Here’s every year that the Nasdaq composite index has been up 30% or more, along with the annual percentage return in the following year:

This is actually pretty surprising!

It turns out that only 2 out of the 11 banner years in tech stocks were followed by down years!

Most of the ultra strong annual returns were followed up by another year of positive returns.

This is a very small sample size of course, and there’s no guarantee that this historical pattern will repeat in 2024.

Still, it might throw a little cold water on the idea that tech stocks MUST go through a hangover next year.

What about the S&P 500, which has a longer history?

It too has a tendency to experience positive returns even after a strong previous run:

The data above indicates the S&P 500 delivered positive returns nearly 2/3 of the years following 20% rallies in the index.

So history would tell us that the stock market is not predestined for bad returns in 2024.

No year is ever perfectly calm & smooth in the markets, but at least we can be a little more optimistic about the potential path ahead in the new year!

3 Crypto Narratives to Watch in 2024 🧐

2024 is shaping up to be a defining year for crypto, with narratives weaving tales of transformative potential.

Here's a dive into the 3 big potential sectors and how to find the real gems in this vast digital treasure trove:

1. Bitcoin's Halving Bonanza:

2023's sweetheart, Bitcoin, isn't just resting on its laurels.

With the much-anticipated Bitcoin Spot ETF on the SEC's table, we might see a flood of boomer investments in early 2024.

Plus, it's a halving year, historically a trigger for bull runs. While holding Bitcoin seems wise, we’re exploring riskier avenues like Bitcoin miners or Ordinals that might yield bigger rewards.

2. Gaming: The Crypto Catalyst:

Gaming isn't just about fun and games anymore; it's a crypto powerhouse.

Digital asset ownership, a Web2 pain point, finds resolution in crypto, allowing players to monetize in-game time through tokens and NFTs.

With top-tier blockchain games launching in 2024, the gaming narrative is set for an explosive year.

3. AI: Beyond Sci-Fi:

ChatGPT has revolutionized AI, catapulting it from silver screens to daily utility.

AI's integration in crypto is spilling into rendering, trading bots, and more, creating a narrative too potent to ignore. While AI's growth isn't tethered to crypto, the synergy is undeniable.

How to Spot Potential Winners:

With over 8,800 tokens in the fray, finding winners requires focus. Key areas to consider:

1. Adoption: Look for metrics like Total Value Locked and active wallets. A strong, engaged community often spells success.

2. Value Proposition: Does the project solve a real problem? Is the product live, functional, and enjoyable?

3. Development: A good project evolves. Check for consistent delivery, partnerships, and team transparency through AMAs.

4. Tokenomics: Beware of projects with high allocations to early investors. Look for sensible inflation rates and a clear use case for the token.

So, 2024 is about harnessing the narratives of Bitcoin, gaming, and AI, while focusing on adoption, value, development, and tokenomics to unearth the real gems in crypto.

The Wealth Effect: A Savior Or A Problem? 🤔

When recapping asset performance for 2023, something is brewing: people are feeling wealthier again.

When looking at Stocks, Real Estate and Bitcoin prices, things have been looking pretty great year-to-date.

• Bitcoin, the beloved crypto risk asset, is up a whopping 165% YTD.

• Real estate prices have held up well in the face of higher rates thanks to low inventory levels. The median existing home sales price is up almost 7% YTD. This means a lot of people have held on to the equity they built since the 2020 price spike.

• The stock market measured by the S&P 500 is up 25% YTD. Quite impressive considering how low expectations were going into the year and that the annualized return is around 11%.

So, assets prices are higher and those who invest are likely feeling a lot better than they did last year.

People feeling wealthier can lead them to a sense of being able to afford to spend more.

This is the crux of the issue.

• Will the wealth effect cause consumer spending to hold up, or possibly accelerate too quickly?

• Could this lead to inflation rearing its ugly head again?

These are thought provoking questions that the Federal Reserve themselves may be asking as they watch asset prices soar.

It’s very possible that lowering rates too soon could cause housing prices to keep rising, business to start spending, and overall growth to get too hot too fast.

But, on the flip side, the wealth effect could be a good thing as everyone has expected a major slowdown in the economy, especially as student loan payments are back into effect and credit card debt rises.

It feels like it will be a bit of a catch 22 for a little while.

So, as much as everyone seems to be celebrating interest rates likely coming down this year, we have to see if the wealth effect deflates that idea as the Fed has to continue to fight inflation risks.

Food For Thought 🧠

"My biggest motivation? Just to keep challenging myself.
I see life almost like one long university education that I never had -
every day I’m learning something new.”
- Richard Branson

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.