As we enter the new year, markets are pausing to catch their breath following a red-hot finish in 2023. Not surprisingly, many people are asking, “What’s going to happen this year?” And it makes sense, after two years, with markets first moving swiftly downward and then rebounding almost as quickly, the volatility can be overwhelming. Moreover, with all the uncertainty surrounding politics, geopolitics, the economy, and inflation, it is entirely understandable that everyone wants to know, “How is the outlook for 2024?” So what’s the answer?
The short (and honest) answer is that nobody knows. Period. If anyone tells you otherwise, you should take it with a grain of salt. And that’s because anything is possible. Having the hubris to definitively predict what will play out over a year is a bit much.
As we look forward to 2024, questions abound. Will it be another year of Mega-cap stock dominance or a rotation into more defensive sectors? Will we continue to see a disinflationary environment driven by slower economic growth or a rebound in activity? What will the Federal Reserve do? Will it cut rates? When? And by how much? These are all questions that we do not have answers to. And that is an abbreviated list.
While this may seem stressful, it is essential to remember while anything is possible, far fewer outcomes are probable. And with this probability-based statistical mindset, you can begin to assuage any uneasy feelings you have.
From a statistical perspective, the momentum and optimism from 2023 should carry into 2024. As shown in the table below, historically, when the market has a return of 20% or more, the following year tends to be positive.
Will there be speedbumps along the way? Absolutely. Could the market decrease like it has 4 out of 20 times in history after a 20%+ year? Certainly. Remember, markets are volatile, and last year was no exception.
Even though the market rallied for a 24% return, there was still a 10% correction. The two charts below illustrate that volatility quite clearly. But volatility can be good, as these pullbacks are very common and may provide an attractive buying opportunity as markets go up over the long term.
So what will happen in 2024? Honestly, we don’t know for sure. But we can say with certainty that having a well-constructed, personalized investment plan tailored to your unique situation is a prudent place to start.
Economy
- Markets started the year by giving up some of the 2023 Q4 rally, with the S&P 500 down -1.5%, the Nasdaq down -3.2%, and the small-cap Russell 2000 down -3.7%.
- Job openings decreased by 62K from the previous month to 8.79M in November, marking the lowest level since March 2021 and falling below the market consensus of 8.85M. It was the third consecutive month of declines in U.S. job openings, reflecting the ongoing easing of labor market conditions.
- The U.S. economy added 216K jobs in December, more than a downwardly revised 173K in November and well above market forecasts of 170K. Employment continued to trend up in government (52K), leisure and hospitality (40K), and health care (38K).
- The unemployment rate in the U.S. held at 3.7% in December 2023, unchanged from the previous month and slightly below the market consensus of 3.8%, influenced by a slowdown in new entries into the labor force.
Stocks
- U.S. equities were in negative territory. Technology and Consumer Discretionary led the decline, while Healthcare and Utilities outperformed. Value stocks led growth stocks, and large caps beat small caps.
- International equities closed lower for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased 18 basis points to 4.04% during the week.
- Global bond markets were in negative territory this week.
- High-yield bonds led for the week, followed by government bonds and corporate bonds.
