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Hello Stock Traders,

The U.S. stock market’s 2023 underdogs are flexing their muscles in the opening act of 2024. Forget tech’s recent stumbles – the spotlight is currently shining on sectors that spent last year weathering the storm. Utilities and healthcare, previously relegated to the back benches, are enjoying a triumphant early run, leaving their growth-oriented counterparts watching from the sidelines.

Just imagine: after months of lagging behind, utilities and healthcare have surged over 1.8% and 2.1%, respectively, in the first trading week of the year. Utilities even notched their best weekly jump in nearly two months, while healthcare extended its winning streak to eight weeks – a feat not seen since late 2019. These battered and bruised segments, some still nursing deep red wounds from 2023, are not only back in the game, but they’re outperforming the once-mighty tech sector by a significant margin.

It’s like watching David knock Goliath for a loop. Growth stocks, the darlings of 2023, have stumbled over 4% this week, their recent dominance seemingly fading. Utilities and consumer staples, once considered the market’s wallflowers, have waltzed past tech like seasoned pros, marking their widest weekly performance gap since November 2022. Healthcare, too, has joined the dance, outperforming tech by its biggest margin since April 2022.

Of course, some might see this early-year sector rotation as just a temporary dip before tech reclaims its crown. January performance, particularly the first five days, is often touted as a market trend predictor. Is this a blip, or are we witnessing the end of tech’s solo act and the start of a more diverse market performance?

The truth, like a fortune teller’s crystal ball, remains shrouded in uncertainty. Much depends on the Federal Reserve’s monetary policy pirouette in 2024. As Jerry Braakman, president of First American Trust, aptly reminds us, just like tech felt the tremors of rate hikes earlier this week, so too could utilities and other defensive sectors. Their reliance on dividend income and their sensitivity to rising rates means higher Treasury yields could dim their appeal.

Remember that 2023’s 5%-hovering 10-year Treasury yield made utility dividends (around 3.3%) a less attractive option compared to government debt, not to mention raising companies’ financing costs. As John Luke Tyner of Aptus Capital Advisors puts it, “It really depends on a lot of situations and circumstances with what happens to the economy.”

Furthermore, Tyner adds that some utilities lack the agility to pass price increases as quickly as other sectors due to stringent regulations. They’re not all nimble dancers in this market tango.

It’s worth noting that not all 2023 laggards have joined the early victors’ party. The Russell 2000, despite ending 2023 in the green, had a rough week, falling 3.8%. And while last week wasn’t kind to U.S. stocks as a whole, with the S&P 500 suffering its worst week in over two months, it’s clear that the tides are shifting.

The defensive sectors’ early triumph in 2024 is a fascinating development, one that whispers of potential change. Could this be the dawn of a more balanced market, where sectors beyond tech take center stage? Only time will tell if this is a brief intermission or the start of a new act in the stock market’s ever-evolving play. But one thing’s for sure: after years spent in the shadows, the “battered beauties” are back in the spotlight, and their performance is a story worth watching.

–James

Up next: The ever-rising US debt, now at a staggering $34 trillion, threatens economic disaster unless decisive action is taken, warns JPMorgan, echoing the “boiling frog” metaphor.

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The year is 2024, and a gargantuan shadow stretches across the American economic landscape: $34 trillion of national debt. JPMorgan, a financial giant with more clout than the Hulk’s biceps, throws a chilling metaphor at us – the “boiling frog.”

Imagine: a placid amphibian nestled in tepid water, blissfully unaware as the temperature creeps up, until it’s cooked alive. This is supposedly the fate of the US economy, simmering in a pot of mounting debt.

This isn’t some fringe conspiracy theory peddled by doomsayers in tin foil hats. The CBO, our government’s economic soothsayer, paints a bleak picture: by the early 2030s, the government’s outlays – think retirement benefits, healthcare, and oh yes, interest payments on that behemoth debt – will outstrip its income. We’re basically a teenager maxing out their credit card for daily lattes, with the inevitable debt collector (reality) looming large.

But here’s the thing: we’ve seen this movie before. Economists have been wringing their hands over the debt for years, and calls for action have gotten about as much traction as a unicycle in a mudslide.

Last year, Congress, in a display of political pyrotechnics worthy of a Michael Bay film, finally raised the debt ceiling to avoid a catastrophic default. It was a temporary fix, like putting duct tape on a leaky dam.

And while the world watches with a mixture of concern and morbid fascination, our elected officials seem content to fiddle while Rome, or perhaps Washington, burns. Discretionary spending? Forget it. Congress can’t even agree on what color socks to wear, let alone trim the fat from a budget bloated with good intentions and pork-barrel politics. Michael Cembalest, JPMorgan’s debt detective, aptly quips that the US has “run out of the road” on that one.

Now, there’s a glimmer of hope, flickering like a lone firefly in the fiscal darkness. Cembalest predicts that the markets and rating agencies, tired of waiting for Congress to grow a backbone, might finally force the government’s hand.

Imagine it: the bond market equivalent of a stern parent, grounding the US for its irresponsible spending habits. We might even see “substantial changes” – whispers of wealth taxes and entitlement reform dancing on the horizon.

But even then, the path forward is murky. A “boiling frog” recession, where the Fed’s tightening grip chokes off the economy, still lurks in 2024. Cembalest assures us that if it happens, it’ll be a mild dip, more like a pothole in the economic highway than a sinkhole. Still, it’s enough to make one reach for the metaphorical Pepto-Bismol.

The $34 trillion debt is a complex issue, interwoven with politics, social safety nets, and the very fabric of American life. There are no easy answers, no magic wands to wave away the problem. But ignoring it, like that unsuspecting frog, is a recipe for disaster. Perhaps it’s time we collectively stopped fiddling and started facing the music, lest the melody turn into a dirge for our economic future.

This, my friends, is our collective story. Will we be the wise frog who leaps to safety, or the one boiled alive in our own complacency? The answer, as always, lies in our hands, and the choices we make today.

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