Market Commentary - What’s In Store for 2024

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As we approach year end, I tend to reflect on the challenges and hurdles we experienced during the year. 2023 seemed to present us with a new “issue” every few months, ranging from a mini banking crisis, continued inflationary concerns, elevated interest rates, government shutdowns and geopolitical unrest.

Generally, this much uncertainty is bad omen for markets. While we experienced plenty of volatility, diversified portfolios are on pace for near double digit returns in 2023. This is quite impressive given that the Federal Reserve, the market’s “best friend” for much of the last decade, continues their hawkish stance even as the economic data continues to show significant progress on the fight against inflation.

Barring a monumental collapse in December, investors who stayed the course have once again been rewarded. Of course, there were shaky moments and I must state that 50%+ of stock and bond market returns for the year came during a recent four week period, as seen below.

The past eight years has taught me that ANYTHING is possible. Collectively, we have endured a lot, and while I’d like to think the next eight years will be less hectic, something tells me it will be much the same. For this commentary, I’m going to focus on two topics that are likely to garner a lot of attention in 2024.

Elections

Don’t look now but the U.S. presidential elections are just around the corner. If it’s anything like 2020, we are in store for a lot of drama and uncertainty. This likely will lead to additional market volatility. Do not confuse this with “sell as we get closer to the election”, as markets historically are up double digits in presidential election years.

I can already see how this is going to play out. Various media outlets are going to bring on “experts” to let us know which candidate will be BEST for the economy and markets, when the truth is it really doesn’t matter much. Am I saying the president has no influence over markets? Of course not, but it is NOT as much as you think. The data shows that stock market returns are similar regardless of which party is in power. As globalization expands, which party is in the White House is one of MANY factors that influences markets. As seen on the chart below, the returns in the S&P 500 from 1933 to present are similar under both parties. Some of this comes down to sheer luck. For example, whoever came to power in 2000 and 2008 had their hands full with the dot-com bubble and the Great Financial Crisis. In other words, who is actually running the country doesn’t impact markets as much as we like to think given the various checks and balances that are in place.

Recession

The recessionary talks are heating up again. Economists and stock market pundits are back making their predictions, aka guesses, for 2024. As a reminder, roughly two-thirds of chief economists called for a global recession in 2023. Well, not only did we not have one, the economy was “too strong” to the chagrin of many central banks and the sole reason for keeping interest rates elevated for much of the year. Now there are recent signs that show the global economy is starting to slow, but that’s after roughly 15 months of elevated interest rates! Could a recession occur in 2024? Sure. Remember, a recession does not always equate to a bad market. In fact, the stock market has yielded a positive return in 16 of the last 31 (~52%) U.S. recessions dating back to the Civil war. Those with a diversified portfolio of stocks, bonds and cash experienced even fewer down years.

The truth is most recessions are pretty mild and the economy is already recovering by the time an official recession has been declared. Each recession is unique in its own way, but taking drastic action based on a potential recession is a fool's errand. Could 2024 be different? Of course, but currently there are no major red flags that should cause anyone to panic. If markets continue to trend higher over the coming months, rebalancing and taking some profits is advised, but changing your risk tolerance is not.

In the end, there will ALWAYS be a laundry list of issues to worry about. I can’t remember a time when there wasn’t. More often than not, markets are able to shrug these worries off and push higher. There are the outlier years where markets experience large drawdowns (2001, 2002, 2008, 2018, 2020 and 2022), but good luck predicting when those will happen! History tells us it is almost impossible to, so why try?

Stay the course….

Discuss your situation with a fee-only financial advisor.

Ara