2023 Capital Markets Recap 2024 Outlook

Written by: The Investment Committee

Executive Summary

The major themes from 2022 maintained their relevance in 2023, including the inflation outlook which has driven Federal Reserve interest rate policy, the health of the consumer, and the state of corporate earnings. After 3 years of upward price pressure, the financial trend analysis looks to have broken, with disinflation strongly in place. Keep in mind, there are three types of inflation: 1) standard inflation when prices drift higher, 2) disinflation when the rate of inflation slows (this is what we’ve experienced of late), and 3) deflation when prices decline. The consumer would much rather see deflation, and while they are still rather unhappy about the elevated costs of living, they are still employed, and healthy enough to spend.  Jobs and wage data appear to be holding, indicating a healthy consumer. After observing this data, the Fed has slowed its hand raising interest rates, and even mortgage rates have started to drop. Don’t forget that Gross Domestic Product (GDP) reached 4.9% in the third quarter. And corporate America has in some ways thrived, supported by fiscal spending and new developments in artificial intelligence (AI). It was a year that included some serious volatility, both in stocks and bonds, making this environment particularly uncomfortable even for those with more conservative allocations. Some of this volatility, specifically within fixed income, has shifted the outlook for diversified portfolios for the better.

In the following pages, we will share with you our thoughts, actions, and financial trends analysis for 2023, followed by our outlook for 2024. In review of last year, we will cover:

1) highlights of major market and economic events

2) takeaways and reflections on the year

We then discuss our outlook for 2024, focusing on:

3) major themes and reasons for optimism as well as

4) causes for concern