January 12, 2024

Navigating 2024

As we close out 2023 and move into 2024, this is the time of the year where many pundits on Wall Street issue their year-ahead forecast. To be honest, in my 26-year career, I have read many Annual Predictions and have seldom found them that useful or correct. I guess predicting the future is harder than it seems. What I have found to be useful is to identify potential scenarios and create a game plan on how you plan to Navigate and Adapt to the changes within the economy, geopolitics and the markets.

In our last letter titled Headwinds and Tailwinds, we wrote that the Federal Reserve has pivoted, and we expected interest rates to decline and the market to broaden to allow laggards and small cap stocks to participate. That is exactly what happened, and we all witnessed a sharp rally into the close of 2023.

With the SP500, DOW and Nasdaq at or near all-time highs, the next most asked question is should we sell and realize gains and sit in a 4-5% Money Market or High Quality Bond while we see what happens with Israel and Hamas, China and Taiwan, Russia and Ukraine, The US Border, the Presidential Election or you can fill in the blank with your own uncertainty. Basically, is it time to go home and leave the party?

The last Federal Reserve Meeting, Chairman Jerome Powell changed the conversation and began talking about lowering interest rates versus raising interest rates. He spoke of inflation dropping, supply chains improving and the general economy remaining strong and with a Wink-Wink all but said the “Fed Put” was back on the table. What if that was the start of the party and not the end of the party? The 10-year Treasury Bond Rates have dropped from 5.2% to 3.9%. This helps create liquidity within our economy. An example would be lower mortgage rates or car loan rates helping home and auto sales. Imagine what multiple global peace agreements could do for the markets. As an optimist, I’m going to say When not If that happens, the rebuilding efforts will be massive across the globe. Advancements in Biotechnology and Healthcare, Artificial Intelligence, Blockchain and Space Exploration is creating tomorrow’s winners today.

If I write long enough, I probably could come up with a positive to match every negative. Rather than trying to choose what short-term outcome will happen within the next 12 months, I have outlined our 2024 Wish List.

We are all hoping for a Soft-Landing in 2024, but what does that really mean? What is the Goldilocks scenario?

Rather than a 2024 Prediction List, Let’s make a Wish List:
  • Inflation continues to decline from 3.2 now to 2.2 by year-end
  • Labor markets returns to normal without a substantial decline
  • Short-term interest rates gradually decline from 5.1% to 3.75-4.0%
  • Real Rate (Inflation – Short-term Rates) ends the year at 1.5-1.8% (This helps preserve purchasing power during retirement)
  • From Jan- July 2023 the 10 Year Treasury bounced between 3.5- 4.0%, then the dysfunction in Washington prompted a downgrade of US Debt and the 10 Year Treasury traded from 4% to over 5%.
    This caused the swoon down in stocks from Late July to October. Goldilocks would mean Washington and The United States can stay United versus Divided as we move through the 60Th U.S. Presidential election.
  • Israel and Hamas do not spread into a Regional War involving US troop participation
  • A ceasefire/ peace agreement between Russia and Ukraine and being prepared for the opportunities that rebuilding Ukraine would create
  • The benefits of Artificial Intelligence show up in operating efficiency and corporate profits which could potentially broaden the tech rally

In the near-term, I suspect that investors will realize some 2023 gains within their growth holdings and reposition within the value sectors of the markets (Healthcare, Energy and Financials). Regardless of what happens, I do expect increased volatility in both the stock and bond markets in 2024. This volatility will most likely come from inflation updates, international conflicts and US Politics.

I would recommend focusing on your individual financial goals. What are you needs, goals, risk tolerance and time horizon? What are you trying to accomplish with your investment portfolio? We have built our careers on building custom, diversified portfolios for clients. We will help you build and Navigate your portfolio around whatever changes occur in 2024. Each of these different scenarios will present opportunities for investors.

We wish everyone a Healthy and Happy New year!

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