By: Darren W. King | Wealth Management
Source: Bloomberg, Inc.
Key Takeaways:
- GDP expands to 2.6% growth in 2023, well above early 2023 estimates at .4%
- US stock and bond markets both stage significant rallies after Fed indicates hiking cycle is over and indicates 75 basis points of rate reductions in 2024
- The Consumer Price Index ends 2023 at 3.1%, down from 6% in the first quarter
- The 10-yr treasury moves from 4.57% on September 31st to 3.88% at year-end following easing of wage and inflationary pressures
- S&P 500 rallies 11.68% in the 4th quarter following Fed’s revised outlook on interest rates and resilient economy
Equity Strategy
Equity markets enter 2024 having rallied back to just slightly below the all-time highs set in January of 2022. While odds for a recession in 2024 are still elevated, the current labor market and employment levels support a softish economic landing. Corporate earnings turning positive after several quarters of negative earnings growth are also a catalyst for equity markets. While we believe that some of 2024’s returns were pushed forward in 2023 with the substantial equity rally in the fourth quarter; value, defensive, small capitalization, and international equities stand to rebound after not participating in the growth-led rally in 2023. In short, we see modest returns for equities in 2024.
Fixed Income Strategy
Within the fixed income markets, March of 2022 initiated a major shift in Fed policy as interest rate liftoff began in the first quarter of 2022 with the Fed indicating that 2024 will bring the normalization of short rates and the end of the tightening cycle. While longer duration yields have moved appreciably off highs reached in October of 2023; we took advantage of the higher rate environment in 2023 to add bond exposure where appropriate. For clients who remained concerned with inflation and short with fixed income holdings; we highly recommend extending duration of bond holdings and locking in current rates before yields move lower over the next several years. While growing concern of the sustainability of the US government’s fiscal position and still high inflation could keep a lid on further downward pressure on yields, we still see a higher probability for yields moving lower over the next several years.
Click here to read the entire Q4 2023 Market Review.
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