Retail investors sold billions of dollars in stocks in November as mom-and-pop traders took advantage of a strong rally in the equities market, according to new S&P Global Market Intelligence data.

Last month, retail investors sold more than a net of $23.63 billion in stocks, the largest monthly outflow since the end of 2021. In the first 11 months of 2023, retail traders sold approximately $58.29 billion worth of stocks.

Armchair investors joined their institutional counterparts, which also sold about $17.15 billion of equities. By comparison, index funds and exchange-traded funds (ETFs) purchased nearly $22 billion of equities in November. Hedge funds trimmed their equity holdings by close to $4 billion.

"We are seeing some burnout from the last few years of relatively aggressive inflows for the group," said Christopher Blake, executive director for S&P Global Issuer Solutions, in the report. "The volatility throughout this year led to some initial selling for the group in recent months, but once that trend reversed, we see retail continuing to sell even into strength."

Meanwhile, retail investors mostly abandoned their positions in communication services, financials, industrials, materials, and real estate.

The increase in retail outflows coincided with a sharp rally in the broader U.S. stock market, with the S&P 500 rising close to 9 percent in November.

But the latest New York Stock Exchange performance suggests that these individuals missed out on exceptional gains, especially with the Dow Jones Industrial Average hitting a record high and firming above 37,000.

Year-to-date, the Dow Jones is up more than 12 percent, the S&P 500 has surged 23 percent, and the Nasdaq Composite Index has spiked 41 percent.

Mr. Blake noted that net selling by hedge funds suggests that they "see limited additional room for the current market rally to continue into year end."

With the Federal Reserve signaling three interest-rate cuts next year, has the potential loosening of monetary conditions altered forecasts for stocks in 2024?

Talking Stocks in 2024

According to the CME FedWatch Tool, the futures market is penciling in a 70 percent chance of a rate cut as early as March 2024, the first one since the early days of the COVID-19 pandemic.

But while the road to 22-year-high interest rates may have been swift, the way down might take a little longer, especially as the Fed unwinds its roughly $8 trillion balance sheet, said Arthur Laffer Jr., the president of Laffer Tengler Investments. Financial markets could face resistance heading into the fresh calendar year.

"We would expect that rates move back up into the 4.5% range on the 10-year around year-end/beginning of January," Mr. Laffer said in a note. "Profit taking from the recent run-up and a full calendar of US debt issuance as far as the eye can see plus continued Fed balance sheet unwinding will keep pressure on rates staying higher in the short run."

Others think the central bank could be "jumping the gun" on rate cuts as early as March since it would be "premature."

"While the market is clearly anticipating potential cuts sometime in early 2024 as inflation slows, the need for a cut at this time would be premature and those thinking we get one by March may be jumping the gun," said Jay Woods, the chief global strategist at Freedom Capital Markets, in a note. "Given the glide path, we are currently on and Powell’s tendency to not jump the gun when reversing course – as we saw in the initial delays to hike – expect the first cuts to come in Q2 at the May 1st meeting."

But if the Fed does follow through on the Summary of Economic Projections data, a lower-rate climate could be good news for small-cap stocks, noted Charlie LaRosa, the vice president of the value investment team at Gabelli Funds.

"Our outlook remains optimistic for small to mid-cap stocks, given the compelling valuation of the Russell 2000 value, which is currently trading at just 11 times expected earnings for the next 12 months," Mr. LaRosa said. "As value-oriented stock pickers, we continue to seek franchise businesses with barriers to entry pricing power recurring revenue, and large free cash flow generation that can successfully navigate any macro environment."

Looking overseas, there is plenty of speculation that the European Central Bank (ECB) will soon begin cutting interest rates amid lower inflation expectations. But ECB chief Christine Lagarde pushed back against growing expectations that the institution could start trimming interest rates.

Speaking at a post-monetary policy meeting press conference on Dec. 14, Ms. Lagarde was less dovish than her U.S. counterpart. She stated that policymakers "did not discuss rate cuts at all,” adding that the biggest concern is that inflation could rebound as prices already remain elevated.

But skeptical observers note that Fed Chair Jerome Powell had expressed a similar sentiment for months, saying as early as Dec. 1 that it would be premature to begin discussing rate cuts.

Across the globe, many central banks are entertaining the possibility of cutting rates, though officials worldwide warn that the era of easy money might be over. As a result, a landscape of higher capital costs would favor "more robust companies as opposed to those earlier stage growth companies," said Ben Kirby, the co-head of investments and managing director at Thornburg Investment Management.

"There's a broad discount on international equities. But let me go a step further. There's an even bigger discount and dividend-paying stocks around the world, especially international dividend-paying stocks," Mr. Kirby stated in a note.

"We think that we are in a cost of capital normalization so that whenever interest rates were at zero for so much in the last decade, that really was an unusual period, and then we're just simply getting back to a more normal environment where interest rates should not be zero."

Looking ahead, JPMorgan Research analysts anticipate a price target of 4,200 for the S&P 500 next year. If accurate, it would represent an 11 percent drop from the Dec. 14 close of 4,720.

“As we approach 2024, we expect both inflation data and economic demand to soften, as the tailwinds for growth and risk markets are fading," wrote Marko Kolanovic, the chief global market strategist at JPMorgan Chase, in a report. "Overall, we are cautious on the performance of risky assets and the broader macro outlook over the next 12 months, due to building monetary headwinds, geopolitical risks and expensive asset valuations.”

Tony DeSpirito, the global chief investment officer of fundamental equities at BlackRock, sees "greater opportunity for stock pickers" that goes beyond the Magnificent 7 (Alphabet, Apple, Amazon, Meta, Microsoft, Nvidia, and Tesla).

Morgan Stanley is neutral and forecasts a flat stock market in 2024, though some pockets of the equities arena might perform better than others.

Goldman Sachs is also neutral, anticipating that the S&P 500 will finish 2024 slightly higher.

The Bank of America is ultra-bullish, projecting that the S&P 500 will finish the year at 5,000.

Candace Browning, head of BofA Global Research, said that “2023 defied almost everyone's expectations: recessions that never came, rate cuts that didn't materialize, bond markets that didn't bounce, except in short-lived, vicious spurts, and rising equities that pained most investors who remained cautiously underweight.

"We expect 2024 to be the year when central banks can successfully orchestrate a soft landing, though recognize that downside risks may outnumber the upside ones.”

Fed officials do not think inflation will return to the central bank's 2 percent target rate until 2026. They also believe that U.S. economic growth will be below 2 percent in 2024, 2025, and 2026.