Podcast Summary: The Biggest Winners and Losers of 2024

Episode: The Biggest Winners and Losers of 2024
Release Date: December 31, 2024
Hosts: Downtown Josh Brown and Michael Batnick
Guests: Various friends and experts
Podcast: The Compound and Friends

1. Introduction

In a special supersized edition of "The Compound and Friends," hosts Josh Brown and Michael Batnick delve deep into the financial landscape of 2024. They explore the year's top-performing and underperforming sectors, stocks, investment strategies, and broader economic trends, providing listeners with expert insights and actionable takeaways.

2. 2024 Market Overview

Major Index Performance

• NASDAQ: Achieved a remarkable 32% return, continuing the decade-long trend of large tech leading the market.
• S&P 500: Posted a 27% gain.
• Russell 2000: Returned 12%, reflecting solid performance in small-cap stocks.

Quote:
Josh Brown noted at [04:40] “A continuation of the past couple of years, dare I say decade plus of large tech leading the way.”

Mean Reversion Analysis The hosts discussed the lack of mean reversion in the market, emphasizing that the trends of previous years largely persisted through 2024.

Quote:
Michael Batnick at [04:47] stated, “It's cute to be a contrarian and think that just because it's January 1st, everything that happened over the last 12 months will stop and the trend will somehow magically reverse.”

3. Factor Investing in 2024

Top Performing Factors

• Momentum: Dominated with a 48.4% return, marking a 20% annualized total return over the past five years.
  Josh Brown at [06:03]: “Momentum is the clear standout factor for 2024.”

• Growth: Returned between 2.38% to 6%.

• Quality: Yielded 27%, performing well in a strong market.
  Michael Batnick at [07:16]: “Only in a rip workable market could you say 27 is not bad.”

• Low Volatility: Gained 14.9%, appealing to conservative investors.

• Value: Returned 13.4%, continuing to lag behind growth stocks.

Dogs of the Dow Strategy The "Dogs of the Dow" strategy, which involves investing in the ten highest-yielding Dow stocks, underperformed by 14 percentage points, marking the fifth weakest performance in six years.

Josh Brown at [08:44]: “The dogs have trailed the actual Dow by 14 percentage points this year, which is the fifth weakest performance in the last six years.”

4. Sector Performance

Best-Performing Sectors

• Communications: 36.6% increase, driven by giants like Meta and Alphabet.
• Financials: Rose 32%, with major banks behaving like fintech stocks.
• Consumer Discretionary: Up 29.5%, boosted by Amazon and Tesla.
• Technology: Gained 24.2%, led by software, semiconductors, Apple, Microsoft, and Nvidia.

Michael Batnick at [10:18]: “Three of the four worst sectors are three of the smallest sectors in the market: Materials, Energy, and Real Estate.”

Underperforming Sectors

• Materials, Energy, and Real Estate: Experienced significant declines.
• Healthcare: Notably the worst-performing sector, with many large-cap healthcare stocks lagging behind the bull market.
  Josh Brown at [10:40]: “Pfizer was my worst performer.”

Quote:
Michael Batnick at [11:22] highlighted, “Disgusting. So I think that if you're looking for some sort of regime change or maybe you want to get cute in 2025, this is pretty much blown all the way up.”

5. ETF Growth and Trends

Record ETF Inflows

• Total US ETF Assets: Surged to $10 trillion, marking a significant increase from previous years.
• Active Equity ETFs: Grew to $897 billion, enjoying a profitable year despite being a fraction of the passive market.
• Active Fixed Income ETFs: Reached $1.7 trillion, following the trend of increasing ETF popularity over mutual funds.

Josh Brown at [13:41]: “We had a trillion dollars in inflows across the board.”

Private vs. Public Investing The hosts discussed the growing trend of private market investments entering public vehicles like ETFs, although they cautioned about higher fees and liquidity concerns.

Michael Batnick at [38:09]: “We are in the early innings of a secular shift from public to private.”

6. IPO Landscape

2024 IPO Performance

• Total IPOs: 146 deals raising $29.6 billion, a 50% increase from the previous year.
• Despite structural challenges, including easier access to private markets, there was a notable uptick in IPO activity compared to 2023.

Josh Brown at [17:23]: “We did get a lift. So this year we did 146 IPOs worth $29.6 billion. Last year it was 108 deals worth $19.4 billion—a 50% increase.”

Future Outlook Expectations are that significant IPOs by companies like Stripe, SpaceX, Databricks, and OpenAI could further influence the market landscape.

Michael Batnick at [17:27]: “I think Stripe, SpaceX, Databricks, OpenAI—there are companies that people think are $500 billion or more companies at some point that they won't come public necessarily at that valuation.”

7. Personal Investment Stories

Reddit Stock Example Josh Brown shared his successful investment in Reddit, purchasing shares at a significant dip and benefiting from the company's strategic moves, including partnerships and data monetization.

Josh Brown at [18:15]: “I bought Reddit at $112, and it's now up to $170. I'm up 50% very fast.”

Quote:
Michael Batnick at [18:37]: “Great trade, Great trade.”

8. Mergers & Acquisitions (M&A) Activity

2024 M&A Trends

• Total M&A Value: $1.9 trillion across 17,574 transactions, slightly elevated from the previous year.
• Expectations for 2025: Anticipate a 50% increase with more spin-offs, acquisitions, mergers of equals, and private equity activity.

Josh Brown at [22:19]: “I think they're going to see all kinds of spin-offs, acquisitions, mergers of equals, more private equity activity as well.”

9. Household Wealth and 401k Trends

Record Household Wealth

• US Household Net Worth: Reached a new high of $159 trillion, though concerns about wealth inequality persist.

Michael Batnick at [23:29]: “The world's 500 richest people have a significant portion of the country’s wealth, but there are many average ordinary people who have done very well for themselves as investors.”

401k Balances by Age

• Ages 55-70+: Average 401k balance around $250,000.
• Ages 30-50: Balancing towards the upper end, with expectations to reach $300k-$350k in the next decade.
• Young Adults (20-24): Average balance of $7,200, highlighting the need for increased saving and investment.

Josh Brown at [25:41]: “People above the age of 55 through 70 have average 401k balances of around $250,000.”

10. Best and Worst S&P 500 Stocks of 2024

Top Performers

1. Palantir: Up 360% (added $139 billion in market cap).
2. Vistra: Gained 266.1%, the best-performing utility stock.
3. Nvidia: Increased by 176%.
4. GE Vernova (Spin-off of General Electric): Up ? (exact percentage not specified).
5. United Airlines: Benefited from increased consumer spending and travel rebound.

Michael Batnick at [26:23]: “Palantir is the stock of the year.”

Worst Performers

1. Adobe: Down 25%, possibly due to AI-related workflow concerns.
2. AMD: Decreased significantly despite Nvidia's strong performance.
3. PepsiCo: Fell due to price increase saturation and declining volumes.
4. Merck & Co. (M&A related uncertainties): Down 6%.
5. Johnson & Johnson: Declined 5%, lacking breakthrough products.

Josh Brown at [28:32]: “Adobe is down 25%, it's a software company involved in AI.”

11. Consumer Trends

E-Commerce Surge

• US E-Commerce Share of Retail Sales: Returned to new highs, more than doubled over the past five years, reaching $1.16 trillion by September.
• TikTok Shop: Exceeded platforms like Sephora and QVC, driving significant sales through influencer promotions.

Josh Brown at [32:16]: “The percentage of things that we buy off the Internet is going much higher.”

Holiday Shopping

• Holiday E-Commerce Spending: Set new records with Cyber Week, Black Friday, and Cyber Monday showing 7-10% increases over the previous year.
  Josh Brown at [36:32]: “We spent $131.5 billion between November 1st and December 2nd.”

12. Private Equity and Wealth Management Trends

Shift from Public to Private

• Increasing integration of private assets into public portfolios and 401ks, despite challenges like higher fees and liquidity issues.
• Survey Insights: Majority of wealth managers hold allocations between 1-10% in alternative assets, with a significant opportunity for growth.

Michael Batnick at [38:09]: “We are in the early innings of a secular shift from public to private.”

Skepticism and Caution

• Concerns about conflicts of interest, due diligence, and administrative burdens.
• Advisors are cautioned to evaluate private investments meticulously, avoiding high-yield promises and non-correlation claims.

Josh Brown at [42:44]: “If you're getting sold something, it's not great. What's the worst reason to invest in private? 14% yields. Not realistic.”

13. Options Trading Trends

Record Activity

• Daily Options Contracts: Averaged 48 million in 2024, marking the fifth consecutive year of all-time highs.
• Amateur Participation: Increased from 23% to 29% of US options activities, indicating a shift from hedging to speculative trading.

Josh Brown at [48:50]: “Options are now prop bets.”

Michael Batnick at [49:00]: “We're all in. We're a nation of gamblers.”

14. Notable Winners and Losers of 2024

Winners

• Elon Musk: Capitalized on significant political and business moves, including strategic ownerships and AI ventures.
• Peter Thiel: Benefited from Palantir’s stellar performance and his involvement in conservative politics.
• Michael Saylor (MicroStrategy): Achieved a 422.5% increase, heavily investing in Bitcoin.
• Jamie Dimon (JPMorgan Chase): His leadership drove a 45% total return, outperforming the S&P 500.
• Blackstone and Apollo: Both saw substantial gains, with Apollo up 85.5% and Blackstone up 34%.

Josh Brown at [52:09]: “Michael Saylor, I think he's one of the biggest winners of the year.”

Losers

• Gary Gensler (SEC Chairman): Faced challenges with ETF regulations and court losses.
• Elizabeth Warren: Did not achieve her regulatory goals despite strong banking performance.
• AMD: Lost significant market cap, contrasting Nvidia’s success.
• Carl Icahn: His stock plunged, reducing his net worth by $15 billion.
• Perma Bears: Consistently underperformed, reinforcing the risks of bearish investing during bull markets.

Josh Brown at [62:12]: “Carl Icahn is one of the people that has not won in 2024.”

15. Conclusion

Josh Brown and Michael Batnick wrap up the episode by reflecting on the remarkable successes and notable failures of 2024. They emphasize the importance of understanding market trends, diversifying investment strategies, and staying informed about sector performances. The hosts encourage listeners to remain vigilant and proactive in their investment decisions as they prepare for the opportunities and challenges of 2025.

Josh Brown at [67:43]: “If you just buy both stocks, one of them is going to have a turnaround that maybe both that negates whatever the downside is in the other one.”

Notable Quotes:

• Josh Brown at [04:40]: “A continuation of the past couple of years, dare I say decade plus of large tech leading the way.”
• Michael Batnick at [07:16]: “Only in a rip workable market could you say 27 is not bad.”
• Josh Brown at [08:44]: “The dogs have trailed the actual Dow by 14 percentage points this year, which is the fifth weakest performance in the last six years.”
• Michael Batnick at [11:22]: “Disgusting. So I think that if you're looking for some sort of regime change or maybe you want to get cute in 2025, this is pretty much blown all the way up.”
• Josh Brown at [18:15]: “I bought Reddit at $112, and it's now up to $170. I'm up 50% very fast.”
• Michael Batnick at [38:09]: “We are in the early innings of a secular shift from public to private.”

This comprehensive summary encapsulates the key discussions and insights from "The Biggest Winners and Losers of 2024" episode, providing listeners with a clear understanding of the financial landscape and investment opportunities of the year.