Letter From The Editor, John Norris
At the start of 2023, the threat of recession loomed over the markets, and investors hoped the Fed would start cutting the overnight rate. Fortunately, despite all of the worry, the economy continued to expand, almost in spite of itself. Perhaps as a result, not only did the Fed not cut rates, it continued to increase them through the middle of the year.
Interestingly, the markets didn’t seem to mind these hikes in 2023 as much as they did in 2022. The fact that we were closer to the end of the tightening cycle than the beginning was apparently some type of solace. By the start of the 3rd quarter, investors finally felt comfortable that the Fed’s next move would be a cut.
Even still, at the start of the year, it appeared as though the Fed might have gone too far and too fast with its rate hikes than in the previous years. While it almost seems like ancient history, everyone held their collective breath when Silicon Valley Bank, and others, essentially failed at the start of the year.
Would this be the start of another financial crisis like the one in 2008-2009?
2024 Annual Predictions
Federal rate cuts expectations, cheaper money, weakening labor markets, college football rivalries, the presidential election and other projections from our Investment Committee.
- Due to the strength of the stock market rally to end 2023, investors start 2024 wondering what equities will do for an encore. Unfortunately, stocks give back some of their gains during the 1st quarter, as large foundations, endowments and fund complexes rebalance their portfolios back to their target allocations.
- After a historic run in terms of absolute and relative performance over the last decade, large cap growth stocks are poised to underperform their value counterparts in 2024. This has more to do with current valuations more than long-term economic growth prospects. Essentially, value stocks have become too cheap to continue to ignore.
- If the futures market is anywhere close to accurate, the Federal Reserve could cut the overnight lending target rate by as many as 150 basis points during 2024.
2023: Year In Review
Blocking out the noise in the media and focusing on what really matters to the economy is extremely important when making investment decisions. The key is determining what is noise what isn’t. Our Investment Committee was effective in doing that in 2023.
2023 Annual Key Takeaways
As 2023 drew to a close, threats of a looming recession subsided. However, prices remain elevated, employers struggle to find workers, gridlock reigns in Washington and our massive annual deficit balloons into 2024.
2023 Economic Overview
The year 2024 won’t be a bloodbath, but it should be a slowdown. The rates of inflation will continue to trend lower, even as prices remain high, and the employment picture will likely be a little softer than it has been. Just enough for the Fed to start cutting rates.
Equities in 2023
The last two months of 2023 gave us our most powerful rally of the year. But don’t be surprised if the incredible performance of the Magnificent Seven can’t continue into the new year. Smaller stocks and value names may finally have their day in the sun.
2023 Allocations
As good of a year as this was on the surface, things were far less smooth underneath. This was a wildly volatile year. However, we have found opportunities to add to some of the more value-oriented cyclical sectors that did not contribute to the end-of-year rally. We think a broader range of companies will begin generating stronger returns. As always, we will remain open minded and focus on generating the best possible risk adjusted returns for our clients.
Fixed Income: The Rising Asset Class of 2024
It wasn’t that long ago, or so it seems, that bonds and fixed income were considered an “afterthought” of an asset class. Now, however, fixed income – ranging from corporate bonds to U.S. treasuries – are receiving some overdue love and attention from both Wall Street and retail investors. What once was a safer but boring asset class, is now a safer, yet cunning, investment.
Special Report: Understanding the National Debt
There doesn’t seem to be an end in sight to our deficits. If we are serious about reducing them, we need to be serious about growing the economy. Putting more regulations, constraints and higher taxes on businesses and capital is not the solution.
