A 2023 Market Review and 2024 Investment Outlook

2023 was a confounding year for economists and market experts. In December 2022, 85% of economists surveyed by the Financial Times predicted the economy would sink into a recession. And, after a significant decline in the stock market in 2022, many market analysts were not expecting much out of stocks in 2023 except more volatility linked to continued tightening by the Fed and slowing corporate earnings.

Well, not only did the economy not sink into a recession in 2023, but it also achieved positive growth throughout the year, highlighted by a 4.9% spike in GDP in the third quarter. For investors moving money into cash for fear of a recession, the stock market left them behind, rallying to a 24% return (S&P 500) for the year. The Fed helped the market with a mid-year decision to pause rate hikes due to a marked slowing of inflation from 6.4% in January to 4% by June. The rate continued to slow, falling to 3.2% by year’s end—still well above the Fed’s 2% target rate.

The market advance in the first half of the year seemed to be on shaky ground as it was led primarily by the "magnificent 7" technology stocks—Amazon (AMZN), Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT) all up 50% or better, and Meta (META), Nvidia (NVDA) and Tesla (TSLA) each up triple digits. But the market advance broadened in the summer, giving it more legs to finish the year strong after a three-month mini correction in the fall.

Where do We Go in 2024?

So, the consensus largely missed the mark in 2023, leading us to believe, once again, that it’s bound to be wrong again in 2024. We just don’t know what they’re going to be wrong about.

Does the consensus still think a recession is coming? A recession has been forecasted for each of the last three years. Even a broken clock is right twice a day, so no one should be shocked if one occurs in 2024.

But will it be a soft landing instead? An increasing number of experts are predicting more of a soft landing for the economy. Some think that it has already occurred. But would we even know what one would look like if it happened?

Will we finally get inflation under control? While it’s currently trending in the right direction, it’s too soon to tell if inflation is under control. Considering there have only been two previous bouts of severe inflation in the last 100 years—post-WWII and the 1970s—there really isn’t much history to draw from. But in both cases, inflation surged for a few years and then fell precipitously.

Will rates head higher or lower? The answer to that question lies in the answer to the inflation question. The consensus appears to be heading in the direction of no more rate hikes and likely reductions in 2024, despite the Fed saying that more rate hikes are still on the table.

What about the stock market? Are we in a new bull market or just a pause in the most recent bear market? In 2023, the markets rallied to near-record highs. Will it continue into 2024? Some analysts are saying that the stocks have already priced in the next three to four rate cuts from the Fed. We just don’t know.

However, we do know that most of the time, stocks go up. But they can also go down. That’s about the best anyone can forecast with any degree of accuracy. It’s difficult to say if that will be the case in 2024, but we can rest assured that it will be the case over the long term.

No matter what headwinds the New Year throws at investors—the elections, expanding geopolitical strife, a looming recession, or an inflation resurgence—one thing is for sure: any market decline is nothing more than a temporary interruption of a more enduring market advance that has been occurring for more than a hundred years.

Like triathletes, investors seeking long-term success must exercise patience, discipline, and perseverance while ignoring the media noise as they focus on their long-term objectives.