INSIGHTS

On January 12, 2024

2024 Investment Outlook

2023 witnessed several dramatic shifts from 2022.

From a capital markets perspective, U.S. equities shifted direction as the S&P 500 Index gained over 26% in 2023 versus a decline of -18.1% in 2022. Several of the most negatively impacted stocks from 2022 became market darlings again in 2023 as investor enthusiasm for artificial intelligence, coupled with a shift in interest rate expectations, drove returns substantially higher. These mega-cap technology, communication services and consumer discretionary stocks have been dubbed the “Magnificent 7” and have been the drivers behind the index’s performance.

There was a clear dichotomy of returns in 2023 however as the tech-heavy NASDAQ 100 gained 55% versus a less noteworthy 16% gain for the blue-chip Dow Jones Industrial Average. International stocks, as measured by the MSCI ACWI ex-US Index, gained over 16% and U.S. small cap stocks gained almost 17%. On the fixed income side, the Bloomberg U.S. Aggregate Bond Index — a measure of the broad fixed income market — gained over 5% this year versus a decline of -13% in 2022.

Economically, the shift from 2022 to 2023 has been equally dramatic. The rate of inflation — just 3.1% on a year-over-year basis in November 2023 — has declined from its high of 9.1% in mid-2022. The Federal Reserve (Fed) paused after its 11th interest rate increase, signaling that it is likely done with its tightening campaign. Economic growth has remained surprisingly strong, supported by still high levels of employment and consumer spending. While the U.S. was able to avoid the widely expected recession in 2023, the question remains whether it can achieve a soft landing in 2024.

Geopolitical pressures grew in 2023. Tensions between the United States and China continued, war in Ukraine hit its second anniversary, and the longer-term implications of the Israel / Hamas war remain unknown. In the U.S., Kevin McCarthy was voted out as Speaker of the House (the first time in history); confidence in the U.S. Supreme Court waned; and 2024 is a presidential election year, which has already begun to insert additional vitriol into the news cycle. For investors, we believe 2024 could be the year where market participants finally begin to realize that the “New Regime” is really the “Old Regime” and that the past 20 years — filled with consistent hopes of ever-low interest rates, endless Fed and fiscal “puts” bailing out the capital markets and the economy, along with low volatility — were the abnormal. We expect the next 20 years will not look like the past 20. This shift could have significant implications for the economy, interest rates and capital markets in 2024 and beyond.

Bottom Line: We firmly believe investors should be fully invested at all times and should remain patient during periods of volatility. We favor a diversified portfolio of high-quality companies that tend to be resilient in turbulent markets.

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CRN: 2024-0105-11346 R