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Our Thoughts on Markets: 4Q 2023 Review

Our Thoughts on Markets: 4Q 2023 Review

January 10, 2024

Dear Friends,

After an extremely difficult 2022, most investors enjoyed healthy returns in 2023. The U.S. stock market was up over 20% and the bond market was up 5-6% for the year. Stock market returns were led primarily by several large cap technology companies (aka The Magnificent Seven), although market breadth broadened out in a late-year rally. The recent rally in stocks was primarily the result of three factors: interest rates appear to have peaked, inflation has steadily declined and the economy has been amazingly resilient.

What’s in store for ’24?  We are cautiously optimistic on the stock market although we wouldn’t be surprised to see a pullback or correction after the recent rally. As usual, much will depend on the Federal Reserve and monetary policy. The stock market appears to have priced in a series of rate cuts for 2024, although the timing and extent of any rate cuts remains very uncertain. We could see the Fed delay or modify the easing of monetary policy if inflation remains stubbornly above the Fed’s target of 2% and the labor market stays tight. As for the bond market, we are setting up for positive returns as yields are finally close to “normal” and it’s unlikely that we’ll see materially higher interest rates in the near term. Cash has been king as money market fund and T-Bill yields have been 5% plus….but those days are probably numbered. We encourage investors who have horded excess cash to consider redeploying appropriate amounts into the stock and bond markets.

A number of factors could create heightened uncertainty and volatility in 2024: geopolitical tension and risk (Middle East, Russia-Ukraine, China, etc.), a worsening U.S. fiscal backdrop and the election cycle. It’s almost guaranteed that circumstances or events will cause moments of fear for both markets and individual investors. In our opinion, that’s all the more reason to utilize a disciplined, long-term investment strategy along with a solid overall financial plan for our clients and their families.

Let us know if we can do anything for youWe appreciate your encouragement and support. Happy New Year!

 

Matt and Andrew