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Think back to January 2023. How were you feeling then? About the economy? About the stock market? Inflation? According to economic prognosticators, market watchers, and investment banks, you should have felt awful. We came into 2023 with most economists calling for a recession sometime during the year and investment banks expecting a negative return on the S&P 500. We were amid a “vibecession” (a term coined by financial educator/content creator Kyla Scanlon) where bad feelings seemed to drive everyone to believe a terrible 2023 was in store.

However, things weren’t so bleak if you looked at the underlying numbers. 

Job creation continued at a steady pace, the unemployment rate was below 4% (and stayed there all year), and inflation started its slow trek to 3% from a high of 9% in July 2022. 

A lot was going right for consumers in 2023, and in the United States we like to say, “so goes the consumer, so goes the market.” (Source: YCharts)

The S&P 500 Total Return Index was up over 26%, mid-cap and small-cap stocks were up over 16% each (as measured by the S&P 400 Total Return Index and the S&P 600 Total Return Index), international stocks were up nearly 19% (as measured by the MSCI EAFE) and bonds were up 5.5% (as measured by the Bloomberg Aggregate Bond Index). For all the doom and gloom, we sure had a good year. (Source: Morningstar)

2024 Outlook

The “vibe” heading into 2024 is not as grim as in 2023, but it’s still chilly compared to “typical” years. The average year-end Wall Street target for the S&P 500 is about 4,861 (Source: financialsamurai.com), about a 2% gain. But as we learned last year, take that with a giant grain of salt.

CHART ONE:  Source: awealthofcommonsense.com/2024/01/what-comes-after-a-good-year-in-the-stock-market/

Historically, good gains are often followed by more significant gains. Ben Carlson (awealthofcommonsense.com) looked at double-digit gains in the S&P 500, followed by another year of double-digit gains. 

Going back to 1928, he found 16 clusters that comprised 40 years in total, meaning more than 40% of the time, investors find the market in double-digit stock market growth clusters.  

Ryan Detrick of Carson Investment Research also looked at years in which a 10% loss (like 2022) was followed by a year with a 10% gain (2023) to see what happened in year three.  As you can see in Chart 2, the third year tends to return double digits.

CHART TWO:  Source –  carsongroup.com/insights/blog/four-more-reasons-24-should-be-a-good-one-for-the-bulls/

Turning to the economy, the Federal Reserve (Fed) is predicting GDP growth of 1.3% in 2024, down from 2.8% (estimated) in 2023. (Source: forbes.com/sites)  However, they expect to lower the Federal Funds Rate from 5.4% to 4.6% during the year (Source: J.P, Morgan Guide to the Markets), and the market is predicting even more rate cuts than that. In either case, it seems we will no longer be “fighting the Fed” when it comes to interest rates, which tends to be good overall for the economy and stock markets. 

On top of this, earnings for S&P 500 companies are expected to rise 11% in 2024 (Source: J.P, Morgan Guide to the Markets). On the other hand, the Institute of Supply Management survey of manufacturing and services business shows an expected slowdown over the coming months. 

However, I’m in the “watch what businesses do, not what they say” camp. If we see continued hiring month over month, I believe we will continue to see a strong economic backdrop.

Lastly, we have an election coming in November. We will dive deeper into policy once the election is closer. However, I find it encouraging to know that election years are typically average regarding market returns, with the first quarter typically uneventful regarding performance (as shown in Chart 3).

CHART THREE:  Source – Carson Investment Research

After the tremendous fourth quarter of returns we just experienced, a period of sideways movement could be in store, which would be very normal.

Ultimately, we continue to believe in the longer-term health of our economy, the consumer, and the stock markets. As always, if you have any questions or your financial situation has changed (beneficiaries, income needs, investment objectives, time horizon, risk tolerance, etc.), don’t hesitate to contact our office. Thank you for your continued confidence in KWB Wealth.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

All performance referenced is historical and there is no guarantee of future results.  All indices are unmanaged and cannot be invested into directly.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Investing involves risk including loss of principal.

No strategy assures success or protects against loss.  The economic forecasts set forth in this newsletter may not develop as predicted and there can be no guarantee that strategies promoted will be successful.