2024 Market Outlook

Happy Tuesday!

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Quote of the Week

"Too often we convince ourselves that massive results require massive action"?- James Clear

The Story

Markets made one final push to close out the year, sending indexes higher for yet another week. Things are always slow between Christmas and New Year, but the 10-year treasury rate and average 30-year mortgage rate continued to fall. Before we officially flip the calendar, let's take a look back at the year that was.

My View

I wrote this on January 3rd, 2023:

"My prediction is that we see some sort of recession in 2023. The unemployment rate will rise and consumer spending will pull back.... Most economists I follow expect the S&P 500 to end 2023 at around 4,000. It is currently around 3,850.... I predict 2023 to be a lot better for bond investors."

1/5 ain't bad, right? It's certainly better than my batting average during pro ball.? 2023 was supposed to be the year of the most anticipated recession in history. Instead, we saw inflation regulate, the unemployment rate remain low, and the S&P 500 finish 20% higher than predicted. I haven't seen one economist who predicted the market to finish this high, although I'm sure they are out there.

2023 was exhibit A on why we should never try to time the market. All signs were pointing towards a recession. But it never came. And if you were sitting on the sidelines out of fear, a great opportunity was missed.

As we enter 2024, which I'll write about below, remember 2 principles:

• Buy quality assets
• Invest for the long-term

The rest will take care of itself.

Coming Up This Week

• Markets Closed (Monday)
• December's Jobs Report (Friday)

To explain why 2023 was different than expected, we have to understand why this market cycle is unlike anything we've experienced. COVID-19 threw a Clayton Kershaw curve ball at our economy that buckled our knees and perhaps sent us back to AAA. COVID was unexpected. And whether you agree or disagree with how the pandemic was handled, the fact remains that it threw a serious wrench in our economy. The world shut down. Supply chains halted to a stop. No one ate out. The hospitality and travel industries became nonexistent. But other industries thrived. Netflix took off (remember Tiger King?). People bought new computers, phones, and tablets. Home Depot sold lots of product to DIYers. New homes were built. Old homes were remodeled.?

The COVID-19 experience created a divergence in business cycles between industries that is different than a normal cycle. Historically, industries are correlated throughout the cycle. When Carnival Cruises is going through a rough stretch, usually Dollar General is as well. Right now, every industry and geography seems to be at a different point in the cycle. Raymond James Institutional Equity Strategist Tavis McCourt always shares this image on the topic:

So what does that mean for 2024? Theoretically, the rolling recessions should make for a mild to no recession in the broad economy this year. I don't expect markets to experience the boom of 2023, but I also don't foresee a bust like in 2022. My base case is single-digit growth for the S&P 500, with periods of volatility along the way. I've seen a 2%-9% S&P 500 prediction from economists, which falls in line with my expectations. The largest known threats to the economy are a delayed inflation impact and geopolitical issues.

Bonds are in a different boat. The rising interest rate environment caused bond prices to fall in 2022. We saw some recovery in 2023, with the U.S. Aggregate index up 2% YTD. Bonds should see solid returns in 2024, especially if rates begin to fall. In addition, investors are now receiving more yield on their fixed-income investments than any time in the recent past.

Finally, we have to talk about the elephant (or donkey) in the room. The 2024 Presidential Election is in November and will cause a lot of noise in the press. Many worry this could derail the stock market. Historically, election years have been favorable for stock market returns, with a median return of 10.7%. 75% of election years have seen positive full-year returns since 1928. In addition, the candidate and party Americans select has had little impact on market returns, with Democratic and Republican presidents posting a 0.7% difference in annualized returns. Long story short, don't get caught up in the noise when the election rolls around.

I say all of that to say this. I will probably be wrong about 2024. Most real economists will be wrong about 2024. And the ones who are right will just be lucky. That's because it is impossible to predict the unknown. To combat this, I urge you to stick with your plan, even if the going gets tough. Buy quality assets and invest for the long term.

Let's have a great year!

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