2023 Year in Review and 2024 Outlook

2023 Year in Review and 2024 Outlook

Hello my friends, and welcome back.

I hope the holidays treated everyone well and that your 2024 is off to a great start.

Given that December was a fairly quiet month for the markets, as is often the case, we’re going to take a look back at 2023 and finish off with what’s in store for 2024.

 

So let’s start with a look back at the key events that happened in 2023.

The year started off with unemployment at 3.4%, the cost of eggs peaking at $4.82 a dozen, and the probability of a recession before year end being in the 60% range.

We also learned that we might not have to yell as much profanity at Siri and Alexa after Microsoft’s multibillion dollar investment in ChatGPT, bringing AI accessible to the masses and students trying to fool teachers with AI-generated essays and homework answers.

In February, we saw the Fed raise interest rates by a quarter percent, driving the yield on the two year treasury bond to surpass 5%.

The media also got new content handed to them on a silver platter after an American fighter jet shot down a Chinese air balloon off the South Carolina coast.

Next, the spring brought us another quarter percent rate hike, followed by Silicon Valley Bank, Silvergate, and Signature Bank all collapsing within a five day span, capped off by UBS buying Credit Suisse for $3.25 billion.

While the treasury stepped in quick enough to prevent another run on the banks, it resulted in the ten year treasury dropping from it’s peak just above 4% down back down to the low 3% range.

Those April showers brought us AI powers in May, headlined by Nvidia hitting the $1 trillion valuation mark, followed by Hollywood writers going on strike, and again another quarter percent rate hike by the Fed.

The summer kicked off with Biden’s loan forgiveness plan being shot down by the Supreme Court, Congress raising the debt ceiling to avoid a government shutdown, and the S&P’s bear market officially coming to an end after rebounding more than 20% from its low in October 22.

And guess what else happened? Yes, another Fed rate hike of a quarter percent. But this time it was the final time, and rates have been flat since then.

As the leaves started turning, so did the US credit rating after Fitch downgraded the US long term debt rating from AAA to AA+.

We also saw US national debt cross a $33 trillion mark for the first time, and student loan debt hit 1.6 trillion.

These events led to a sharp reversal of the markets, with September bearing the worst of it and a resurgence of recessionary fears.

Forget about Halloween October brought fear around the world after Hamas’s bloody attack on Israel resulted in the worst one day mass killing of jews since the Holocaust and the start of another war.

On the economic front, the ten year treasury rallied from its low in April to 5%, which also led to the 30 year mortgage rates hitting 8%.

The year finished off with a huge rally in the markets, inflation for the year dropping at 3.1% and unemployment coming in at 3.7%.

The ten year treasury dropped back down to around 3.9%, rounding off its round trip journey to finish the year right where it started.

 

So what does this all mean for the markets and investment returns?

Well, unlike 2022, when it was nearly impossible to make money in 2023, it was very difficult to lose money.

After dropping 33% in 2022, the Nasdaq 100 was up 55% in 2003, marking one of its best years ever.

And while the biggest stock certainly boosted returns for the year, it wasn’t just the Magnificent Seven that was up in 2023, while the S&P as a whole was up 26%.

The equal weighted version of the index, which averages the returns of all 500 stocks equally rather than based on market cap or size, was up almost 14%.

The Russell 2000, which is a basket of small cap stocks, was up 17%.

We even saw international stocks come back to life with the MSCI EAFE index, which is for the developed markets, being up nearly 19%.

And despite the slowdown in China, even emerging markets were up more than 10% for the year.

And guess what? There was no recession.

Gas prices dropped, inflation fell, and the unemployment rate stayed below 4%.

So all in all, it was a good year for the markets, and you should have seen that reflected in your account balances as well.

 

So what’s on the horizon for 2024?

Let’s start with the elephant in the room.

Yes, it’s another election year, and while we expect it to be controversial again and will inevitably experience bouts of market volatility, presidential election years are generally good for the markets.

Since the S&P was created, the market was up 20 of the 24 years where there were presidential elections. And even including those four times when the market was down, the S&P averaged 11%.

Regardless of the outcome, it’s the following years that are generally impacted based on the election results.

That aside, all eyes still remain on the Fed as they continue their tightrope walk of trying to tame inflation while monitoring overall economic health and navigating that smooth landing they are looking for.

Recessionary fears still remain, however, now they’re coming in at the 40% range rather than the 60% range we saw coming into 2023.

And while solid consumer spending has been one of the linchpins of an otherwise uncertain economic landscape, it is unclear as to how long that will persist.

Concerns over high housing costs, rising credit card debt and dwindling savings in the face of increased consumer prices have some anticipating a slowdown in spending in 2024. A resilient labor market may also help counterbalance those concerns however.

To wrap things up when the economy gives mixed signals, it’s essential to prepare. That’s why we work hard with you to ensure your financial strategy reflects your goals, time horizon and appetite for risk, rather than being reactive and running the risk of you derailing great planning due to whatever headlines come out at the time.

We understand the economy will move through cycles and that it can be stressful at times, but know that we keep a close eye on those things on your behalf and proactively make adjustments if we believe that they are in your best interest.

Well, that’s a wrap. Until next time, be well, stay warm and let’s make 2024 a great year!

 

Laurence