OTW #49: Consolidation leads to big gains, Is a Fed Pivot good thing?, 2024 investing playbook, and more.
Important financial stories to check out over the weekend
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1. Consolidation could lead to even bigger profits.
Occidental Petroleum (OXY) announced it will buy CrownRock, a privately held energy producer, for $12 billion.
This is the third major deal in the energy sector in less than two months. It follows Exxon Mobil (XOM) acquiring Pioneer Natural Resources for $60 billion and Chevron’s (CVX) purchase of Hess for $53 billion.
(Sources: Occidental Petroleum and CNBC)
Antagonist’s take
If you’re a premium member, this energy consolidation isn’t a surprise to you. In the April Blend Portfolio issue, I wrote that you should expect the oil “majors” to start acquiring companies. I also explained that these acquisitions could lead to huge gains for investors.
In light of that theme, we added two small-cap oil stocks to our portfolio. While those companies haven’t been acquired, they have been massive winners.
Since we added them just 8 months ago, their stocks are up 49% and 20%. That’s an annualized gain of 74% and 30%, respectively!
To read about these companies, and why I believe they still have plenty of gains ahead of them, become a premium member and check out this article.
2. Will the Fed pivot? Is that a good thing?
On Wednesday, the Federal Reserve decided to keep interest rates at their 22-year high while also signaling potential rate cuts next year.
The Fed also said it expects inflation to fall to 2.4% next year (a change from its 2.5% forecast in September) and drop further to 2.2% by 2025.
Antagonist’s take
The Fed’s decision presents a complex scenario for investors. On the one hand, lower interest rates make it easier for businesses to borrow money. This can help companies grow, which can in turn benefit investors.
On the other hand, a Fed “pivot” is an admission that the economy is slowing.
The central bank raises rates when it believes the economy is running too hot. It pivots when conditions have changed to such a degree that it can no longer maintain its existing monetary policy.
In other words, the Fed isn’t going to pivot until economic conditions worsen.
, editor of The Lead-Lag Report, has even shown that stocks tend to fall after a Fed pivot.Building on this research, Darius Dale, founder and CEO of 42 Macro, analyzed the events that lead to bear markets. In this 2-minute clip, Dale presents data going all the way back to 1929. He found that during bear markets, Fed pivots have typically caused stocks to bottom.
3. Investing playbook for 2024.
This graphic from Visual Capitalist compiles insights from the 2024 investment outlooks of various institutions like Goldman Sachs, J.P. Morgan, UBS, and more.
From core defensive holdings to more aggressive investing themes, here’s what many of the top banking institutions agree on for next year:
Antagonist’s take
This graphic is worth a read, but it’s not perfect. Nobody can know for certain what 2024 will bring.
That said, our current financial conditions are vastly different from what they were over the last two or three decades.
The combination of low inflation plus interest rates near zero created an environment where stocks were the only game in town. That worked out well, as investors could mindlessly buy up any market dip and eventually profit. Stocks would inevitably rebound, which made everyone look like a genius. This environment also fueled passive investing strategies.
It’s hard to argue with the results. The stock market soared. Even companies with zero earnings and outrageous debt became 10-baggers.
That environment is gone, however. Inflation is a problem, interest rates are at decades-long highs, and shoddy companies are going bankrupt.
That’s not all bad news, however. This means that you can be a true investor. Now, you actually have a choice across various asset classes because it’s not just stocks that offer gains.
Also, quality businesses will rise to the top. And, if you own them, your portfolio will almost certainly benefit.
Sure, it’s more complex than simply buying an S&P 500 index fund. But it also means that there are now multiple ways to outperform the S&P. That’s welcome news for people who either want to pick individual stocks and/or for those who prefer to underweight or even avoid equities altogether.
To see how premium Antagonist members do this, sign up for a free trial. You can see all of our options trades as well as our Blend Portfolio. This includes several non-stock positions that are crushing the performance of the S&P 500.
If you’re already a premium member, consider giving a membership to a friend or family member as a gift.
Last thing...
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Thank you for reading, and have a great weekend!
Jason Milton
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Disclosure: Jason Milton owns shares of ExxonMobil (XOM) as well as the two Blend Portfolio holdings that he mentioned in section #1.
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