After the first few years of the 2020s, which were anything but normal, it’s quite nice to reflect on a surprisingly normal year.
How 2023 Was Normal
Thankfully, the 4th Quarter saw a significant rally in both equities and fixed income, starting from the lows of October 27th. One notable observation that may seem a bit abnormal, though, was the quality of the stocks leading the way. What many consider lower-quality stocks, companies that showed little to no earnings growth, surprisingly led the pack.
Another theme of 2023 was the performance of the "Magnificent 7" stocks (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Tesla, and Meta). For those of you who remember the FAANG stocks from a few years ago, this is the same wine, different bottle. These mega-cap stocks, propelled by advancements in artificial intelligence, dominated the markets. However, looking forward to 2024, we're anticipating a more broad-based rally that should encompass a wider range of stocks.
Will 2024 Be Different?
Likely. Despite the positivity in the markets, the chance of a mild recession still remains 2024. However, thanks to the robust labor market, with 8.7 million open jobs, any recession we might experience is likely to be shorter than usual. This resilience is further supported by ongoing job creation and low unemployment rates.
Inflation
Inflation, still a major theme in 2023 and a key concern for many, seems to be retreating from its June 2022 peak of 9.1%. We project that inflation will continue its downward trend in the coming year, settling around the 2.5-3% mark, which aligns with the longer-term average. For 2023, we estimate inflation to come in around 3%.
The Fed and Interest Rates
The stock market's low point, likely reached on October 12, 2022, seems to be well behind us. This positive turn has been further fueled by expectations that the Federal Reserve will begin cutting rates this year, leading to a rally in both equity and fixed income markets. While we anticipate continued growth in these areas in 2024, it’s important to remember that this growth will not occur in a straight line.
Bonds and Cash
The fixed-income market, after going through an unprecedented skid, now appears to be on the mend. We believe the worst is over for this sector, offering a more optimistic outlook for those invested in bonds and other fixed-income assets.
As interest rates decrease, we expect cash to start underperforming—a historical precursor that bodes well for equity and fixed income markets. This shift is likely to redirect investor focus towards these more dynamic asset classes.
Election
Finally, 2024 is an election year! Naturally, many investors become more concerned about volatility in election years. Contrary to popular belief, however, history suggests that the market tends to rise irrespective of the election outcome. Let this be reassuring for you, rather than an irritant. Believe it or not, the market usually goes up even when the party you don’t like wins the election.
Final Words
Despite the many news stories of 2023 that would lead you to believe there was an impending disaster on the horizon, the stock market year was about as normal as they come. We believe this lays a foundation of cautious optimism for 2024. With a resilient job market, declining inflation, and favorable conditions in both equity and fixed-income markets, investors have much to look forward to in the coming year. As always, it's important to remain informed and strategically diversified to navigate the complexities of the financial landscape. If you have any questions regarding any topics mentioned in this article, please don’t hesitate to reach out to your financial advisor.
Provista Wealth Advisors in Greenville, SC, provides peace of mind through personalized asset management, expert estate planning, and retirement planning. Navigate your financial journey with confidence. Rest Assured, We Have A Plan. Give us a call at (864) 696-2410 or send us a message to schedule your free introduction meeting.