2023 Surprised Most!

Stock and Bond markets ended 2023 on high notes, with the S&P 500 climbing 24.23% and US bonds up 5.31%.

The cocktail of moderating inflation, a Fed pause, market rates pulling back, AI stocks and an amazingly resilient consumer all contributed to 2023’s returns.

Most economists predicted a recession for 2023 and most stock prognosticators did not forecast stocks to come anywhere close to the record high on the S&P 500.  Most investors entered 2023 with extreme skepticism.

The message, be careful who you listen to.  When hearing someone making predictions or providing their opinion, ask yourself, what is their bias?

2024 Start Your Engines

Investors are expecting the Fed to cut interest rates a few times and corporate earnings to increase by double digits.  The “soft landing” phrase is being discussed as a likely scenario for 2024.

I certainly agree interest rates and corporate profits will drive the markets when the smoke clears.  We do have several on-going issues that will be debated, including 2 wars and our election.  In addition, the US Treasury will need to issue a significant amount of new debt to finance our government for the year.

Will inflation continue to moderate? Will the Fed cut rates this year?  The Fed message has been “higher” for longer; however, many believe the economy will slow, forcing the Fed to cut soon and deeper.  You can take the position, with the Fed cutting rates aggressively, stocks become more attractive.  You can take the opposite position, if the Fed needs to cut aggressively, the economy is not doing well, and stocks turn lower.  Again, be careful who you listen to.

Debating where the market will end in 2024 made for enjoyable reading this weekend.  S&P 500 guesses ranged from 4200, a 12% drop, to 5500 a 15% rise.

Most prognosticators were in the middle, around 4900, thinking the S&P 500 will rise modestly, approximately 2.75%. 

The first major piece of data to be reported in 2024 will be Friday, as we interpret the December Jobs report.  Signs of either a deceleration or an acceleration in the number can be market moving.

Balanced Portfolio

If you are either approaching retirement or currently retired, a balanced portfolio between stocks and bonds continues to make sense.  Bond interest rates remain more attractive than in a several years, and there are several parts of the stock market that have NOT appreciated as much as Growth stocks, that may be attractive.  Small caps, value stocks and international equities have not kept up the rise in the S&P and may be attractive.

Technology and growth stocks will certainly continue to be a major force in the growth of our economy, however, don’t ignore stock diversification.  Being too overweight a sector can either be rewarding or very disappointing.  When disappointed, it’s simply too late.

In 2022, Value stocks held up much better than Growth.  In 2023, Growth stocks ran away with the lead. Which will outperform in 2024?  I prefer not to guess.  Having a balance of both Growth and Value stocks contributes to a well-rounded portfolio. 

Please feel free to share our weekly retirement blog with friends, family, and colleagues. 

Wishing everyone all the best in 2024!

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