Well 2023 is history, and what an interesting year it was.  

• Wall St started the year with an overwhelming consensus that recession was imminent.
• The Fed hiked rates 4 times this past year but has paused since August.
• The S&P 500 ended the year with the Top 10 names accounting for 32% of the index! And were responsible for 86% of the return (according to JPMorgan).

Review of 2023 

• Hot out of the gate: Fed ended 2022 with its first decline in rate hikes, so investors started looking farther down the road.
• Regional Banking ‘crisis’: Lasted about 5-6 weeks
•  Spring/Summer acceleration: Lead to a Frothy market, where stock prices were way ahead of fundamentals.
•  3 Month Lull: the economic data started to catch up and suggest that risk of recession was still substantial. The Fed first paused rate hikes and started talking about keeping rates higher for longer.
•  Nov/Dec Rally: Persistently positive economic data continued to roll in and the equity and bond indexes reaccelerated sharply.  The big distinguisher this time though, is that the rally was seen across the board, not just in a handful of stocks.
• Summary: There were 5 main segments to market performance last year but each one was peppered with sharp reversals in the direction it was trending at the time.  These relatively short pockets of volatility can feel unnerving, they are confusing, and they invite doubt as to whether changes to the plan need to be made.

What’s ahead in 2024?  No one knows, so stay invested!

• Recession is still possible but is less likely than before.  Opinion on market return varies widely.  No one predicted a 2023 of +26% containing a -10% drawdown and the 2^nd, 3^rd, and 4^th biggest bank failures in US history.
•  If inflation continues to stabilize, its expected that the Fed will start cutting rates in small increments. This would be a big positive for markets and the economy.   But rate cuts are not promised and there are several factors that could cause the Fed to pause for longer.

 One key thing is to stay invested. 

• Even if the Fed is in wait and see mode, the market will likely operate in fits & starts as the economy tries to get going again.
• Geo-political tension is high right now.  If these tensions were to take sharp turns, it indeed may cause the market to hiccup.  One thing that’s a fact is that markets persevere through geopolitical events.
• The Fed may be done raising rates. Unexpected fallout from high rates may reel its ugly head again.  External events, totally out of the blue, might pop up as they always seem to do.
• This is just a friendly reminder to stay the course no matter what. Missing only a few days of good returns can significantly affect your long term outcome.  Staying invested is always the way to go.

Principles for 2024

• Have another look at your company retirement plan and share details with your advisor.  How much you contribute and when(!) can make a big difference.
• Don’t jump to make investment changes.  A calendar year turnover is a psychological trap when it comes to your portfolio.  Investing exists on a continuum, which moves in cycles.  We did rebalance portfolios twice in Q4 to position for the road ahead.
• Reminder, IRA contributions for 2023 can be made up until you file taxes.  So if you haven’t done that, you maybe still can.  If you’re unsure about eligibility, ask us.
• Savings rates are great now, but these are not expected to last forever; and yields on money market funds are the first to decline when the rate cycle turns over.  So lets get together and strategize about putting excess cash to work in a more sustainable plan.

Joe Gallemore, CIMA®, Partner
Director of Investment Management