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Last year, most people expected stock prices to decline due to the recession. Instead, the S&P 500 rose more than 24%, surprising many who were convinced that Fed interest rates would affect the economy.
One person who wasn’t surprised by the stock market’s decisive rally early last year is hedge fund manager Doug Kass.
Kass, who has been navigating the markets professionally for more than 40 years, told investors in December 2022 that they could expect double-digit returns in the first six months of this year.
This isn’t the first time Kass’s predictions have been prescient. In December 2021, he predicted that the S&P 500 would roll over in 2022 after hitting an all-time high at the start of the year, with inflation accelerating to 8% and the Fed abandoning dovish monetary policy in favor of raising interest rates. He made accurate predictions that he would be deaf, and all of those predictions turned out to be true.
Of course, no one can get all their predictions right. Kass expected the stock to return to profit in the second half of 2023. While that looked prudent in October, the stock found its footing and rose towards the end of the year.
Overall, Mr. Kass has a track record of professional money management, including serving as head of research at Omega Advisors, led by Leon Cooperman, and particularly accurate judgment, which makes investors heed his forecasts. suggests that it should.
He recently picked his favorite stocks to buy in 2024, and they may surprise you.
Doug Kass accurately predicted the S&P 500’s rise last year. Here are the stocks he thinks will rise in 2024.
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Stock market loses some luster
Last year, the S&P 500’s late-year rally began after a summer slump that lasted into October. The decline was driven by concerns that a recovery in oil and gas prices would mean inflation persists. Yields on government bonds, which are used in models to evaluate future profits, soared and stock prices fell.
Related: Analysts make bold predictions for gas prices in 2024
The decline was so scary that most investors avoided the stock, sending sentiment indicators to historically low levels. Bearish investors built disproportionately large short positions, while others moved money out of stocks and into bonds, cash, and money market accounts.
In the end, these actions were the driving force behind the stock price rally from October onwards, and many expected the stock market’s winning streak to continue into January. So far, nothing like that has happened.
Unlike October, when stocks were heavily oversold, stocks were heavily overbought in early January. As a result, stock prices have made little headway. The S&P 500 index has been flat since the beginning of the year, while the small-cap Russell 2000 index is down about 3%.
Small declines are common, so these returns aren’t too worrying. But big declines often start with smaller declines, suggesting investors need to be more selective with their stock selection than they were a few months ago.
Crude oil brings low prices and creates opportunities
It’s not just stocks that got off to a disappointing start.
Oil prices have been falling since October due to weak global demand and a weak economy. The commodity has recently weighed on OPEC’s decision on January 8 to cut prices by up to $2 per barrel for buyers in Asia, Europe and North America.
Wall Street Analyst Details:
This weakness has caused a decline in energy stocks, but Kass believes these declines could create buying opportunities.
A self-described “calculator contrarian,” Mr. Kass feels most at ease when his stock choices go against conventional wisdom. Somewhat unsurprisingly, one of his “10 Surprises of 2024,” announced last month, is that oil prices are set to rise this year.
Kass expects China’s economy to improve and oil demand to grow. But his bigger reason for betting is that geopolitical instability will increase, putting global oil trade at risk and potentially causing prices to soar.
“The global economy is more susceptible to supply shocks than is generally believed. Russia and Saudi Arabia are colluding to cut production, pushing oil prices above $110 per barrel,” Kass predicts. .
His top pick for 2024 is oil and gas stocks.
Kass believes oil prices could rise significantly above the $70 per barrel they are currently trading at. If that happens, profits for exploration and production companies will soar.
As a result, Kass’ favorite stocks for 2024 are a basket of three of the world’s largest oil and gas producers.
“My picks for 2024 are not individual stocks, but a basket of three oil stocks: Occidental Petroleum, Chevron, and Exxon Mobil,” Kass says. “These are also contrarian stocks… Exxon Mobil, Occidental Petroleum, and Chevron will each rise by more than a third next year.”
Companies have seen sales and profits decline over the past year, even as U.S. production hit record highs. Horizontal rig activity in the Permian Basin shale has pushed U.S. crude oil production to more than 13 million barrels per day. But falling oil prices are offsetting production growth as rising interest rates squeeze economic activity around the world.
Higher prices in 2022 made comparisons tougher last year, but lower profits in 2023 mean comparisons will be easier in 2024, and if Kass is right about the direction of oil prices, his This could be a tailwind for your selection.
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