- In the early months of 2024, the bullish trend in the stock market remains steadfast, defying concerns over prolonged high-interest rates. Despite fears, the market demonstrated resilience, with stocks boasting impressive gains of over 10% in the first quarter alone, contributing to a cumulative increase of nearly 30% over the past year.
- Even amidst speculations of reduced chances for Federal Reserve rate adjustments this year, stock prices continued their ascent, particularly driven by the technology sector, where companies poised to capitalize on the surge in artificial intelligence led the charge.
- In this article, we will see how the Everest Formula has performed in comparison with the U.S. indices, also looking at the outlook for the following months.
A review of the last three months
Entering the first quarter of 2024, investors harbored optimism, anticipating a soft landing for the economy characterized by recession avoidance, ongoing improvements in inflation, and anticipated interest rate cuts by the Fed starting as early as March. Contrary to expectations, the economy has not only evaded recession but has exhibited greater resilience than initially anticipated. As a result, the U.S. stock market posted a gain of more than 10% in the first quarter alone, contributing to a cumulative increase of nearly 30% over the past year.
However, the persistence of inflationary pressures has resulted in a postponement of expected rate cuts, now speculated to occur no earlier than June. Initial market projections, which factored in up to five rate cuts for 2024, have been revised downward, with prevailing expectations now centered around a maximum of three cuts.
Looking at Q1 performance by sector, we can observe that:
- The technology sector emerged as the frontrunner among all sectors, boasting a remarkable gain of 12.11%.
- Despite apprehensions surrounding regional banking and commercial real estate, financials secured the third-highest performance among sectors.
- Real estate suffered as the poorest-performing sector, attributed to the Federal Reserve’s commitment to a prolonged “higher for longer” interest rate strategy.
- Initially trailing behind, “old economy” sectors like energy and basic materials made a notable comeback, culminating in the strongest performance during the final month of the first quarter.
How has Everest Formula performed in this environment?
Everest Formula had a solid performance, slightly beating the S&P500 index even though the index itself performed very well. The 3-stock strategy closed on March 31 with a consistent gain of +13.5%, while the 10-stock strategy gained a more limited +11.3%, but with less volatility.
Therefore, the Everest Formula beat the market even in this strong period, having a performance slightly higher than the S&P500. Despite this, we must outline that the volatility was higher than the S&P500. As we highlighted many times, any strategy that uses only a few stocks (like the Everest Formula) has a remarkable volatility that can worry less risk-tolerant investors. For this reason, we suggest applying our strategy to the risky part of your portfolio, which aims towards greater profits.
What is the outlook for the coming months?
While the market’s upward momentum in the previous quarter was fueled by robust earnings growth, the remarkable surge in stocks associated with artificial intelligence stood out, recording significant gains. Consequently, a substantial portion of these gains remains concentrated within a select few stocks, particularly those closely tied to AI. Notably, Nvidia’s remarkable ascent of 90% single-handedly contributes nearly a quarter of the market’s overall return year to date. Including Nvidia, a mere 10 stocks have collectively accounted for a substantial 62% of this year’s market gains.
Looking ahead to the upcoming quarter, we anticipate a broadening of returns across the market, with a particular shift towards the value category, which our valuations suggest remains notably undervalued. Additionally, we foresee a shift towards small-cap stocks as investors seek growth opportunities.
We are convinced that the sectors that have proven successful in the past year and a half may struggle in the next period. Reflecting on the market’s state since the bottom in October 2022, we observe that sectors such as communications, consumer cyclicals, and technology were then significantly undervalued. However, in the present context, technology is now deemed overvalued, while communications and consumer cyclicals are nearing fair value. This prompts us to advocate for a contrarian approach to investments, urging investors to explore opportunities in sectors that have underperformed, are presently neglected, and crucially, are undervalued.
What about the Everest Formula? Many investors in the past have asked us how the Everest Formula will perform in the event of a setback or market crash. Although past performance is no guarantee for the future, backtests show that in the last 24 years, during negative periods for the stock market (e.g., 2000, 2008, 2020, 2022), the Everest Formula initially followed the negative market trend but then rebounded faster, as it did in 2023. So, even if a setback in the rest of 2024 is plausible, the Everest Formula can achieve good results in the foreseeable future.
We don’t know whether the Everest Formula will continue to beat the market month after month, but we firmly believe that selecting good companies at a bargain price will always be a good investment strategy.
If you want to find the best profitable and undervalued stocks in the market, join us now.
