What worked last year, and what could work next year, for Wolfgang Klein

Senior portfolio manager breaks down his outlook for the new year and how he approaches changing short-term circumstances in a broader long-term narrative

What worked last year, and what could work next year, for Wolfgang Klein

Wolfgang Klein believes we’re in a bull market. Around two months before the end of 2023, the tone of markets shifted from high volatility and outperformance by a few select names, to broader-based rallies in equities and the resurgence of performance from the long-pressured bond market. Klein, senior PM and senior wealth advisor at Canaccord Genuity Wealth Management, broke down what trends defined much of 2023, and where this new shift towards a broader based bull rally will leave investors.

“The US market is a new bull market and nobody’s talking about it,” Klein says. “I’ve called a new bull market ever since the S&P 500 got 20% above its October 2022 lows. The secular bull market was challenged by COVID, but it began probably in 2015, and secular bull markets can run for 15 to 20 years. I’ve been saying that this decade the market could push higher into 2030.”

Within the context of a broader bull market, Klein explained a bit of what worked for investors this year, or at least until the last two months of the year. He outlined, too, some of the trends he now sees forming as markets shift into a bull run once again.

The magnificent seven worked. Tesla, Amazon, Microsoft, Nvidia, Apple, Alphabet, and Meta combined are up over 100% in 2023. Through most of the year, their outperformance dragged an otherwise flat S&P 500 higher. Bonds didn’t work, at least until November, with significant volatility in fixed income due to interest rate increases and a ‘higher for longer’ view. Klein notes that shorting bonds was smart, as was a long position in the US dollar. Shorting real estate and banks also worked until about 60 days ago.

While he thinks making yearlong forecasts is “a mug’s game” over the last two months of 2023, a new series of trends have taken shape that Klein believes investors and advisors should be aware of. He expects the 60/40 portfolio to do relatively well in 2024, as will bonds given the broader outlook for interest rate cuts in 2024. For the same reason he thinks both real estate and leveraged businesses should perform a little better. He thinks the US dollar may be worth shorting and that growth stocks should continue to perform next year, though value may participate in a broader bull market as well.

Taking a longer time horizon, Klein tends to favour stocks over bonds, growth over value, and US markets over world markets.

Klein sees some risk in the S&P 500’s current overweight towards the magnificent seven. While he still advocates for holding the names, he thinks an overweight no longer makes sense and holding a wider breadth of names can benefit. He also sees some risk in bets on a US recession. If investors are positioned for a recession they should be aware, Perhaps the greatest risk he sees investors facing now is the temptation of GICs.

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Rising yields have attracted $700 billion into the GIC market, which Klein believes is retail money. He believes that these retail investors are often wrong, and are wrong to be positioned in GICs. That’s because of the comparative attractiveness of US treasuries which come with effectively zero risk of default, are highly liquid, and currently pay attractive yields — not to mention their trend towards capital gains as yields fall.

As he meets with clients at the start of 2024, Klein is reiterating the value he’s been able to deliver his clients. He continues to make his case for long positions in what he sees as a bull market. He thinks long positions in US markets can continue to work, he thinks bonds now have a place in the portfolio, and perhaps more importantly he prepares his clients for some short-term tweaks to take place throughout the year.

“I’m a compounder of wealth, the most important thing in the game is to be long, stay long, just make sure you’re in the right stuff,” Klein says. “When I sit down with clients they get the same speech from me every time: buy good businesses, diversify yourself, don’t worry about the minutia, that’s why you’re paying me. I truly don’t know what’s going to happen next year, I know how I’m positioned now. If a stock’s going up I’m probably doing something right, if a stock is going down I’m doing something wrong. I adjust the sales to the gales.”