‘We have vanquished 9% inflation’: This investment guru says 2023’s bear case is now dead and stocks are ‘cheap enough to buy.’ Here’s what he likes in particular
After a years-long saga of soaring inflation, experts are now declaring victory in the battle against rising costs.
“We have vanquished 9% inflation,” Josh Brown, CEO of Ritholtz Wealth Management, commented during a recent CNBC interview.
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Brown was referring to the 9.1% annual surge in the consumer price index recorded in June 2022. It was the largest annual increase in the index since 1981.
Since that peak, the inflation rate in the U.S. has subsided. The latest data indicates that the consumer price index rose by 3.1% in November 2023 from a year ago.
Brown added he was impressed by how well the economy handled this process.
“We did it without a single person losing a job. Please, please understand that we just [added] 199,000 new jobs last month and the war on inflation has been won,” he said.
Brown’s observations highlight a crucial point. The U.S. Federal Reserve has implemented a series of aggressive interest rate hikes to curb inflation. Higher rates can slow down the economy. Yet, the labor market has shown remarkable resilience.
According to the latest jobs report, nonfarm payrolls increased by 199,000 in November, while the unemployment rate declined to just 3.7%.
Additional achievements have been notable as well.
“VIX at 12, stocks cheap enough to buy, all of those widely held stocks in America having massive double digits, in some cases, triple-digit rallies off the lows. Plus, we averted a potential banking crisis. What else could you have asked for out of 2023?
“I don't know.”
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Stocks to buy in 2024?
In 2023, the S&P 500 climbed 25% while the Nasdaq surged 45%. Despite these impressive gains, Brown doesn't believe the market is overvalued.
“Some stocks are overvalued, but on the whole, the asset class — not overvalued,” he said.
But you have to know where to look in order to find bargains.
For instance, he discourages investors from focusing solely on the so-called Magnificent Seven — Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). While these companies are well recognized for their strong performance and market dominance, Brown believes there are other opportunities in the market.
“You could buy stocks without buying the seven stocks and that's the trade right now,” Brown suggested.
“You can buy small caps for 12 times forward earnings. You can buy mid caps for 13 to 14 times forward earnings. You can buy large cap, basic materials nine times earnings,” he explained.
In other words, if you want to find value, you’ll need to look beyond the hottest tickers.
Notably, Brown highlighted the potential shift of investments from money markets to dividend-paying companies.
“Money markets were the trade of the year — $6 trillion in money markets right now,” he explained. “If any meaningful portion of that $6 trillion goes into stocks — doesn't have to go into the SPY ETF — it can go into the Dividend Aristocrats … NOBL. Look at the way they're treating the VIG, Vanguard Dividend. This is where the money is flowing right now because everybody understands this.”
Brown was referring to the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) and the Vanguard Dividend Appreciation ETF (VIG). Both ETFs focus on companies with a record of growing their dividends year after year.
While Brown remains optimistic about the stock market’s prospects, he also advises caution.
“The 2023 bear case is dead. The 2024 bear case is still ahead of us. There are probably going to be reasons to be concerned,” he added.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.