“Write it on your heart that every day is the best day in the year.” – Ralph Waldo Emerson
In 2023, the financial markets underwent a significant transformation, moving away from the volatile, stimulus-driven landscape of the post-pandemic era. This year was marked by remarkable economic resilience and recovery, characterized by easing inflation and a robust job market, diverging from the prior year’s instability.
Despite early concerns of an imminent recession, both the U.S. and global economies displayed strong growth. The U.S. economy, buoyed by consumer spending and a persistently low unemployment rate below 4%, coupled with a global economic uptick of 2.8% in the first half, showcased recovery strength. These gains were partly fueled by diminishing supply chain disruptions and geopolitical tensions from the pandemic.
Inflation, while starting the year at higher levels, showed a declining trend, with the U.S. CPI dropping from 6.4% to 3.1% by November. This downward trajectory is expected to continue, aiming for the Federal Reserve’s target of around 2% by mid-2024. However, global core inflation remains a concern, likely staying above 3% into 2024.
The stock market in 2023 witnessed a shift in leadership, expanding beyond the tech sector. The energy and industrial sectors outperformed, signaling a move towards a more diversified and balanced market. The bond market experienced modest gains, as reflected in the Bloomberg US Aggregate Bond Index, reminding investors of the inverse relationship between bond prices and interest rates.
Looking ahead to 2024, the economic growth is expected to moderate, necessitating a diversified investment approach and vigilant monitoring of inflationary trends. Central bank policies will be crucial in shaping the market, emphasizing the importance of staying informed and adapting strategies accordingly. With both positive and negative factors at play, it’s vital to maintain a forward-looking perspective and seek tailored guidance for individual financial situations.
Here’s what Generosity Wealth Management founder, Michael Brady, has to say:
Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered here in Boulder, Colorado. It’s a lot more fun to make today’s video than it was this time last year because 2022 was a dumpster fire. Unmanaged stock markets and unmanaged bond indexes are both down over 10 percent, depending on which one you want to look at. Nothing was good, and it felt that way. You know what? That’s not the situation we’re seeing ourselves in for 2023.
Let’s go back just a few years as a little bit of a multiyear view of the world. So, 2020 was a positive year, with lots of money dumped into the economy because of the COVID shutdown. In 2021, we still had supply issues, but we dumped lots of money in and 2021 was a positive year for the unmanaged indexes. In 2022, we had supply issues and lots of money inflation, so 2022 was a bad year. Just horrible. In 2023, the first and second quarters were good. The third quarter was not good for the unmanaged indexes. This fourth quarter has been just a roaring great quarter. For 2023, we’re looking positive, depending on the indexes. It’s definitely double-digits. The unmanaged bond indexes are still single digits, and we’re clawing our way back from what was given up in 2022.
You have to remember that with unmanaged bond indexes, when interest rates go up, bonds go down. The bond indexes go down in general, and of course it’s the flip. When the interest rates go down from the Fed, the unmanaged bond indexes will hopefully go up and should go up. That’s why there’s that inverse relationship.
As we’re looking at 2024, we should be optimistic because it feels like the markets, most of your pundits, the media, and most of your major investors are expecting a 2024 decrease in interest rates after such a sharp increase in 2022. This is good for the unmanaged bond indexes and for the stock indexes, and hopefully that will also correlate to people being a lot happier as we have a positive 2024.
Let’s not forget that we have a pretty volatile situation going in with a sitting president who is running for reelection and a former president who, if he’s the candidate, may run again. Nonetheless, we’re going to have two candidates for the presidency in a very sharply divided country. As always, there’s lots going on in the world, whether that’s the Middle East or Ukraine. Hopefully, in 2024, we don’t have any issues with China that we’ve all been talking about.
If you’re looking for something to be pessimistic about, you know what? I’ve got something for you. If you’re looking for things to be optimistic about, hey, I’ve got that too. We’ve got the interest rates. We’ve got an economy that’s chugging along. We’ve got companies that have made themselves more profitable by increasing the profit margin. If you’re looking for stuff that’s going to be positive, there is lots to be positive about as well.
Three out of four years historically, as we go back 100 years, the unmanaged stock market indexes have been positive. We had a negative year in 2022, and 2023 has been positive. Hopefully, 2024 will continue, but I have to say that humility is a big part of everything that I’m about. Generosity, humility—and why do I say humility? For the first part of my life, I wasn’t as humble as I should have been. But with some experience, I realized that you never know everything. There’s lots going on that you miss. You do the best that you can, and the future is also inherently unknown, so what can we do to navigate inherently unknown waters going forward? That’s what we’re doing here today.
Mike Brady, Generosity Wealth Management, 303-747-6455. Let’s have a great 2024. Thank you for being my client in 2023.