With just four trading days remaining in 2023, the broader U.S. stock markets have rallied to levels near or above their all-time highs. Led by what is being referred to as the “Magnificent Seven,” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) the S&P 500 Index is up over 23%. In stark contrast to 2022, when the S&P 500 Index was off 18%, stocks have seen a resurgence on the heels of a stronger-than-anticipated U.S. economy, a resilient labor market, and slowing inflation. Many of the same growth stocks that led the markets down in 2022 have carved out huge gains in 2023. The Magnificent Seven have each more than doubled the S&P 500’s gains this year.
Investors are looking ahead to 2024 with increased confidence as the investment climate appears to include lower interest rates and continued slowing inflation. The two primary headwinds coming into 2023—rising interest rates and higher-than-expected inflation—are no longer present. While inflation is still above the Fed’s target, it is becoming increasingly more likely that the Fed has been successful in bringing down inflation without forcing the U.S. economy into recession. The U.S. economy is expected to slow in 2024, but the Fed is projecting U.S. GDP growth will remain positive. At its final meeting of 2023, the Fed left interest rates unchanged for the third consecutive time since July and indicated that if its economic projections remain as they are, as many as three rate cuts may be necessary in 2024.
Fixed income returns are slightly positive (1.37%) year-to-date, as measured by the total U.S. investment-grade bond market. Ever-changing economic news and periodic Fed updates have resulted in increasing volatility in the fixed income markets. The U.S. 10-year Treasury yield has been as low as 3.26% and as high as 5.02%. The current yield is 3.93%. The curve remains inverted, with short-term rates exceeding those at the longer end. The current yield on the U.S. 2-year Treasury is at 4.46%.
As we head into 2024, eyes will remain focused on three key economic indicators (GDP, unemployment, and inflation) along with guidance from the Fed on their view of the economy and what, if any, action they might take as a result. Geopolitical issues such as the Russia-Ukraine war, the Israel-Hamas war, and ongoing tensions between the U.S. and China also will continue to impact the overall economic and investment landscape. And, let us not forget about the increasing political divide here at home and the presidential election taking place on November 5, 2024. Many, many things to consider and digest as we begin to wrap up 2023 and see what 2024 has in store for us. A couple of things we know for certain are that no one knows exactly how things will develop, and that there will be developments that we barely know exist right now.
Lastly, I would be remiss if I didn’t mention the passing of Charlie Munger at age 99. A true icon in the world of investing, Charlie was best known as Warren Buffet’s longtime partner at Berkshire Hathaway. However, long before that partnership, Charlie was already a highly successful attorney and investor. Once, when asked how he would like to be remembered, Charlie said that while he knew this would not be the case, that he would like to be remembered as a teacher. With that, I’d like to share some Charlie Munger quotes I find apropos:
“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.”
“The best thing a human being can do is to help another human being know more.”
As always, your relationship team is here to meet with you in whichever way is most comfortable for you. We value your relationship and the confidence you have placed in Adirondack Wealth Management by choosing us as your financial partner.
I hope everyone enjoyed a wonderful holiday season and that you were able to spend quality time with family and friends.
Sincerely,