| | | | | By Jeff Brown, Editor, The Bleeding Edge | | |
2024 has finally come to a close. | | | | And chaos it was… | - The proxy war with Russia has continued in Ukraine, with the U.S. Congress having already appropriated $175 billion. And even just yesterday, whoever is running the country decided to send $2.5 billion more to Ukraine.
- The war in the Middle East has sadly become even more widespread.
- There were not one but two assassination attempts on President-elect Trump while he was running for office.
- The U.S. government ran an unthinkable nearly $2 trillion fiscal deficit for fiscal year 2024 (ending September 30), and the government is now on pace for a fiscal deficit even larger in the current 2025 fiscal year (ending September 30, 2025).
- The U.S. debt is now $36.3 trillion, adding more than $1 trillion in debt every 100 days or less.
- The crisis of illegal immigration actually got worse this year. Almost 11 million illegal aliens have entered the U.S., almost 400,000 of which were apprehended who were confirmed as on the terrorist watch list, according to the U.S. Customs and Border Protection (CBP). Who knows what the actual number is as most are not apprehended?
- A sitting president was deemed unable to continue his run for re-election, due to health problems (dementia). This revealed a massive coverup of his inability to carry out his duties which involved the mainstream media for at least the last couple of years.
- The extent of the encroachment of the Censorship Industrial Complex was further unveiled – with even more communications released from the Twitter files and in congressional testimony. A real turning point came in August, when Meta CEO, Mark Zuckerberg, testified before Congress. In a letter to the judiciary committee, Zuckerberg also publicly stated his regret that both he and his company complied – to the degree of censorship that he and his company did – with the government's "requests" (i.e. mandates) to censor and de-platform people and organizations who didn't support the government's desired political narratives.
- Inflation continued to roar. While the growth in inflation slowed, prices have remained elevated for anything and everything that we need in life, from housing, electricity, food, fuel, insurance, and anything discretionary.
| | What a complete circus it has been. | | One of the major predictions I made for 2024 was that inflation would continue to persist… and that the Federal Reserve would struggle to reduce the Fed Funds Rate as predicted. This was a very contrarian view. | | In January, the markets were telling us to expect a string of rate cuts in the Fed Funds rate – between six or seven 25 basis point (0.25%) cuts between January 2024 and January 2025. | | That would have been between 150 and 175 basis points of reduction of the Fed Funds rate. | | I said there'd be no more than 75 basis points cut. | | Let's see how I did… | | Between a Rock & a Hard Place | | Here's what I wrote on January 3… | | | The markets are also telling us that a string of rate cuts in the Fed Funds rate are in our future this year. | | That suggests six or seven 25 basis points (0.25%) cuts between now and January 2025. That would be between 150 and 175 basis points of reduction of the Fed Funds rate between now and then. | | If that happened, 2024 would be an immediate "risk on," gangbuster of a year for the stock markets. It would also guarantee a sharp recovery in small-capitalization stocks. | | Of course, I want this to happen. Wall Street wants this to happen. | | But it won't. It's wishful thinking. | | | | I was even more specific with my prediction. I went further… | | | This means that if there are any interest rate cuts, they will be limited – far less than what the market has priced in. I'd say 75 basis points or less. | | As long as we accept that fiscal deficits will continue to remain at ridiculous levels this year, the Federal Reserve will be forced to keep interest rates higher for a longer period. | | | | The reality is that the two major contributors to inflation – supply chain problems and the labor shortage – have run their course. They've been accounted for. And we shouldn't expect that they will be able to reduce inflation any further. | | And the Fed – and any future rate cuts – is not only baked into current market sentiment, the market has overestimated the Fed's ability/willingness to make such aggressive cuts. | | | | And, as we now know, that's about what happened. | | September brought about a 50 bps cut, November 25 bps, and this month was a final 25 bps. 100 basis points in total, and there has been a lot of debate about whether or not the 25 bps cut this month was prudent. | | Many have argued still that it was too aggressive, as the fiscal deficits have increased, not fallen, and inflation persists. I definitely agree. And we can actually see that it was by looking at a couple of charts. | | This dynamic can easily be seen in the chart of the 10-year U.S. Treasury Bond yields: | | | | The Federal Reserve has completely lost control of the bond market. Despite the 100 basis point decline in the Fed Funds rate, 10-year treasury yields have risen sharply above 4.5%. | | Equally as telling is what has happened with the average 30-year fixed-rate mortgage: | | | | It has risen again to around 7.25% despite the upper bound of the Fed Funds rate at 4.5%. This has been horrible news for the housing market. The share prices of home builders have been crushed since September as a result and are trading around their lows for the year. | | | A Risk of Even Higher Inflation | | Another key topic I highlighted in January was the urgent issue of fiscal deficits and the national debt – something the media typically ignores. | | As I pointed out at the start of the year, the U.S. government ran a deficit of nearly $1.7 trillion for fiscal year 2023 (ending September 30, 2023). That put the national debt figure at $34 trillion. | | Worse still, interest payments on the national debt had doubled over the previous two years. | | Well, this trend of fiscal irresponsibility only accelerated this year… which is exactly what we expected. | | The U.S. government ran a deficit of $1.9 trillion in fiscal year 2024 (ending September 30th, 2024). That puts the national debt at more than $36 trillion… and debt service costs are now threatening to spiral out of control. | | The federal interest expense on the national debt was over $1 trillion in fiscal year 2024 for the first time ever. | | I realize that with numbers this large, it's hard to grasp the magnitude of the situation. | | To illustrate how extreme the situation is, let's look at the largest federal expenses for fiscal year 2024: | - Social Security: $1.5 trillion
- Interest Payments: $1.1 trillion
- Medicare: $869 billion
- Defense: $826 billion.
| | That's right… interest payments were the second line item on the federal budget this year – surpassing both Medicare and Defense spending. That's ridiculous any way we look at it. | | This is why the incoming presidential administration is placing a high priority on aggressive spending cuts and fundamental reforms. | | They have to get the fiscal deficits under control, and ultimately tame inflation and bring interest rates down. Or else interest expense will quickly crowd out most federal spending… which would likely lead to a massive collapse in the U.S. Treasury market and spur rampant inflation – even worse than what we have seen to date. | | This is why I predicted that we would see a lot of volatility in the stock market in 2024 – both on the upside and the downside. | | The interplay between inflation concerns, interest rate expectations, and government deficits was bound to create periods of uncertainty. | | And that's largely what we saw. | | Tech Saved the Markets | | The S&P 500 is up almost 25% for the year. However, it's important to note that the overall rise has been driven by the largest stocks in the index. | | 170 of the S&P 500's stocks are down for the year. That's 34% of the entire index. And more than half of the entire index is either down or up less than 10% on the entire year. | | And we saw some big swings from month to month, as well. The S&P 500 rose about 11% in the first quarter of the year, only to drop 5.4% in April. May to mid-July it rose 12.9%, only to fall 8.5% into early August. There were some wild swings, with a lot of volatility in between. | | But despite all of the predicted chaos and volatility that happened this year… | | Despite the clear and present danger of falling into a dystopian nightmare of basic fundamental rights being taken away – like freedom of speech… | | It was a pretty remarkable year in the world of high-tech: Our shining light and path towards a world of abundance. | I wrote on December 28 of last year that 2024 would mark the beginning of what I call manifested AI. My framework for how we can think about this concept is that we humans will manifest artificial intelligence (AI) into forms that will be easy for us to understand and interface with. | | As I pointed out, this is an unstoppable trend. | | And I went on to suggest that the biggest gains in the stock market will come from those companies creating, leveraging, or enabling AI in this way. | | This was, in fact, the single biggest trend of 2024 and the key driver behind the gains in the NASDAQ. | | The composite index rose an impressive 32% this year. | | | | But again, the chart is deceiving. | | The rise wasn't across the entire market. The Magnificent Seven had an outsized impact on the index returns for the year. The further rise of Alphabet, NVIDIA, Amazon, Apple, Microsoft, Tesla, and Meta was all fueled by the explosion of artificial intelligence (AI), which defined the year's performance. | | And of those seven stocks, it was really NVIDIA, Tesla, and Meta – all long-term favorites of mine – that drove the average returns of the seven of almost 70% this year. | | OpenAI's ChatGPT became a household name this year. And generative AI from various tech companies is now common in households and workplaces across all demographics and industries. Further, the rate at which AI technology is advancing is astonishing – as we've discussed all year here in The Bleeding Edge. | | Microsoft has been closely linked to the success of OpenAI due to its "controlling" interest in the private company. Meta has developed one of the leading large language models (LLMs). NVIDIA has released its new Blackwell GPUs, an impressive jump in performance compared to last year's model. | | And Tesla has not only manifested AI in the form of its latest self-driving cars, trucks, and now robotaxis and robovans using its full self-driving (FSD) software – version 13.2 – it has manifested AI in the form of its humanoid robot, Optimus, which will ultimately become a market larger than that of electric vehicles. | | The incredible investment in AI and the application of AI in businesses is what drove the best gains in the stock market. | | For reference, hundreds of billions of dollars were spent this year building "AI factories" – data centers designed to both train – and run – AI applications. | | This has driven outsized share price gains for the key companies powering this trend forward. | | Nvidia (NVDA) is finishing up the year with a gain of about 183%. And several of our recommendations in Exponential Tech Investor have done even better: | - AppLovin (APP) is up 732% for the year (and it was up as high as 935% in early December).
- Credo Technology (CRDO) is up 276% in 2024.
- Real Brokerage (REAX) has gained 206% this year.
| | In addition, Vertiv (VRT) is up 152% on the year. | | The bottom line is that the right AI stocks were the place to be in 2024 – just as predicted. | (If you do not yet receive the Exponential Tech Investor membership, but would like to, my team and I would love to welcome you – but you must act fast. In fact, today is the final day we are re-airing my emergency sit down with MarketWise founder Porter Stansberry from August, when I relaunched the service. Again, this is the last day to take up this special offer – so if you would like to begin receiving my Exponential Tech Investor research, I encourage you to sign up here through this link.) | | The Top-Performing Stock of 2024 | | Finally, I'm happy to say that AppLovin is officially the top-performing stock of the year. | | I believe that makes this the fifth year out of the last seven that I've chosen the top-performing stock of the year. That's not an easy task as an analyst, and it sure feels great when I can continue to get it right. | | I also made a big prediction about the IPO market, which is the lifeblood of high-tech and biotechnology investors. | | Regular readers will know how closely I track the IPO markets, filings, and the distortions in the IPO market caused by venture capital and private equity. | | In January, I predicted… | | | I believe that the IPO market will also continue to be lackluster this year, with the majority of the more interesting offerings happening in the September to early December timeframe this year. | | | | And that's exactly what we saw: | | | | Source: Renaissance Capital | | 2024 brought in only $29.6 billion in IPO proceeds across 146 IPOs. This level may represent an improvement over the bear markets of 2022 and 2023, but it is still not even at levels seen back in 2017. | | The healthcare sector (biotech, etc.) had 35 IPOs… and technology had 22, raising about $12.5 billion in total. That's a very light year. | | And the largest tech IPOs, Rubrik (RBRK), Reddit (RDDT), and Astera Labs (ALAB) all raised less than $1 billion each. It was a completely uninteresting year when it came to IPOs. | | The IPO market is a dam just waiting to break… | | As investors, what we really want to see is breadth in the broad markets, rather than conditions that are heavily driven by primarily one sector, in this case AI, or by a very limited number of companies. | | This can only happen if inflation is brought under control by reigning in the egregious fiscal deficits and money "printing," improving the regulatory environment in support of innovation, and putting economic policies in place in support of healthy economic growth. | | Assuming these things happen, interest rates will fall, the broad markets will rise, investment capital will rotate into small-capitalization stocks again, and the IPO markets will flourish… giving investors access to an entirely new realm of exciting tech and biotech stocks that I've been tracking closely for the last decade. | | And no matter what happens, my team and I will be here at Brownstone Research helping you make sense of it all… and providing unique research and analysis on the most exciting ways to invest in growth markets. | | From the Brownstone family to yours, wishing you a wonderful and exciting new year. We have so much to look forward to. | | Jeff | | P.S. Tomorrow, we'll look into the future of what 2025 will bring and the opportunities next year will present. | | | | | | | Today, we revisit Jeff's outlook for 2024 from the beginning of this year… | | | | | | What's driving the eVTOL market right now? | | | | | | We could argue the information that DeepMind has provided the world is invaluable, perhaps priceless. | | | | | | | | | | | | | | | To ensure our emails continue reaching your inbox, please add our email address to your address book. This editorial email containing advertisements was sent to riku221199@gmail.com because you subscribed to this service. To stop receiving these emails, click here. Brownstone Research welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-888-512-0726, Mon-Fri, 9am-7pm ET, or email us here. © 2024 Brownstone Research. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Brownstone Research. | | | | |
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