4Q’23: Stock Market Tailwinds Likely to Continue in 2024 as Fed Rate Hikes End..
The stock market performance in 2023 was the mirror image of 2022 when the stock market closed down double digits: S&P 500 -19.4%[1], Nasdaq off -33.1%.1 Even bonds took a beating with the Bloomberg U.S. Aggregate Bond Index down 13.1%, the worst showing in its history[2] vs. +5.65% in ’23.[3]). 2023 recouped most of ‘22’s drawdown with the S&P 500 up +24% and Nasdaq up +43%.[4]
Given the unprecedented speed and number of interest rate hikes in 2022 – seven hikes from .25% to 4.25%[5], investors entered 2023 in a pessimistic mood, with the consensus continuing to call for a recession, underweighting stocks in their portfolios. Scares like the regional bank crisis in early spring of ‘23, when heavy losses in the bond portfolios of several major regional banks caused a liquidity squeeze that forced them out of business. (The bank problems were quickly contained by immediate Fed action to protect depositors’ money, preventing a potential systemic crisis.)
But as 2023 wore on, inflation continued to go down, gradually if at times haltingly, from a high of 6.5% in December ’22 to end the year at 3.1%[6]. Meanwhile, defying all conventional economic models that predicted higher rates would cause job losses and a pullback in spending, the consumer kept going as employment stayed strong with higher wages, ending the year at a 3.7% unemployment rate. Consumers finished the year with savings higher than pre-pandemic[7] and company managements in aggregate reported respectable quarterly earnings throughout the year with positive though guarded forward outlooks. Earnings likely troughed in Q3 (and earnings drive stocks).
When the Fed finally signaled the likely end to further rate hikes in Q4 given progress in bringing inflation down, treasury rates declined, and the stock market took off: the S&P 500 climbed 11.7% in Q4, ending the year just shy of a new all-time high .
Despite mega-cap tech stocks having outperformed most of the S&P 500 in ‘23, e.g., Meta +200%,* Amazon +80%,* Nvidia +239 %,* there are major tailwinds from the much-ballyhooed AI that should support further and significant appreciation in the group over time: when major technological innovation comes to the fore, it is usually multi-year in impact and development. We are well represented in portfolios in this group.
Meanwhile, with consensus views of a soft landing in the economy, it is likely to be a stock-pickers’ market as consumer demand continues to support the economy; with interest rates still over 5%, cash and bonds have finally been able to contribute some performance to portfolios.
As always, we at BD8 Capital Partners continue to focus on your long-term financial future and planning needs, while managing your investments to help meet your financial goals.
Yours truly appears on CNBC weekly to talk about stocks and the stock market, and we post frequently on Twitter, LinkedIn and our Bd8Cap Facebook page if you want to hear our most recent thoughts.
But please never hesitate to contact us with any questions or concerns at any time.
Barbara Doran
CEO CIO
BD8 Capital Partners LLC
Cell: 917-733-7644
bdoran@bd8cap.com
linkedin.com/in/barbara-doran-7aa248
https://twitter.com/barbara_doran1__
[1] https://fortune.com/2023/12/29/stocks-2023-sp-nasdaq-soaring-economy/
[1] https://www.axios.com/2022/12/31/stock-market-performance-2022
[1] https://finance.yahoo.com/quote/AGG/performance/
[1] https://www.cbsnews.com/news/stock-market-up-24-percent-2023-rally/
[1] https://www.forbes.com/advisor/investing/fed-funds-rate-history/
[1] U.S. Department of Labor’s Bureau of Labor Statistics
[1] https://institute.bankofamerica.com/economic-insights/2023-year-in-review.html
*https://finance.yahoo.com/