Valued Clients, Friends, Family, Happy New Year!  I sure hope 2024 is filled with happiness, love, success, good times, and well-behaved children, but I’ll take four out of five.

It was only 13 months ago I was sitting in this same seat talking about how resilient markets are in the face of negative news and to focus on the long term.  At the same time, the largest banks were predicting recession in 2023 with 100% certainty.  How reckless.  The cover of fortune magazine was selling fear by providing investors with a game plan for the upcoming recession, that did not happen.

Reality is, stocks defied the skeptics in a very unpredictable 2023. The Dow Jones finished at an all-time record high on December 28, and the S&P 500 came within a whisker of a fresh all-time high and rallied more than 20% for the year.

It wasn’t only stock investors who had plenty to cheer about. Bond portfolios, the good ole 60/40 investor we often speak about which struggled mightily in 2022, staged a furious late-year rally. Bloomberg’s broad bond market benchmark returned 5.5% for the year after being negative year to date in October.

Last year was especially gratifying given the pessimism at the outset. It also offers some important lessons for investors that will make me sound like a broken record if you’ve heard me talk markets in the past;

  • Don’t always follow the herd. They’re right at times, but wrong more often than you think. As recently as May 2023, Wall Street strategists forecasted at year end for the S&P500 to be at $4,017—about 19% too low. Stocks rise about three times as often as they fall, so be wary of bearish herds.
  • Consider cycles and trends. Stocks rarely fall two years in a row. Year three of the presidential cycle which was 2023 has been the best over time which I reminded investors early in 2023 when the prospects of growth was nonexistent. Bear markets tend to recover losses in under a year in the absence of recession, for example the last bear market ended in October 2022. When I analyze historical cycle averages, our research shows mid-to-high single-digit gains for stocks in 2024.
  • The third important lesson is don’t bet against the U.S. consumer. Every economic cycle is different, but the post-pandemic recovery distorted the economy such that traditional economic indicators misled many economists. One takeaway here is stimulus matters—for example, low interest rates, stimulus checks, student loan forgiveness, and even infrastructure spending. Another takeaway is that consumers with jobs will spend. The unemployment rate still remains near 50-year lows.
  • Lastly, focus on the long term. This unusual economic cycle made it extremely difficult to predict where stocks were going, reminding us that “time in the market” is a better mantra than “timing the market.” Waiting it out through the down periods, even through wars, a banking crisis, and widespread calls for recession, that’s the best approach for nearly all investors.

These are all great lessons to tuck away as we turn to 2024. The year may not bring quite as much joy to your portfolio, but with inflation down, unemployment low, corporate fundamentals in good shape, and the Federal Reserve poised to cut interest rates, the ingredients for another profitable year are in place.

Here’s to a joyful and prosperous 2024.  As always, please reach out to me with questions.

Stay safe and stay the course.

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