We’re at the end of the year already. Around this time, we recap what happened, and pundits predict what will happen in the year to come. At the end of 2022, many predicted a “looming recession” in 2023, referencing data charts, the inverted yield curve, and historical trend analysis. Surprising to most, the U.S. economy proved to be extremely resilient in 2023. That doesn’t mean we’ve gotten away without some twists and turns along the way. But as we close out the year, the numbers are generally positive.
The U.S. Commerce Department’s Bureau of Economic Analysis reported that the American economy grew by a noteworthy 5.2% annualized pace in Q3.[i] Additionally, corporate profits were up 4.3% in the third quarter, a remarkable improvement from just 0.8% gain in the quarter prior.[ii] Further, consumer spending rose at 3.6% in Q3. That strength in spending could remain strong in the last quarter of the year. Black Friday and Cyber Monday have already made headlines as one of the highest volume days in history.[iii]
On the flip-side, unemployment rose to 3.9% as of October. Although that is lower than the historical average unemployment rate of 5.71% (averaging the U.S. Unemployment Rate from 1948-2023), that is the highest it’s been since January 2022.[iv] Higher unemployment tends to lead to higher savings rates by households, and lower consumer spending, which could slow future economic growth.
Inflation in October was at 3.2%. That rate is down slightly from 3.7% in late-summer, and down tremendously from the 9.1% peak in June of 2022.[v] However, inflation is still above the Fed’s target of 2%.
All things in consideration, this blend of good and bad news lays the foundation for what could be the end of the Federal Open Market Committee’s (FOMC) historic quantitative tightening program. Since March 2022, the Fed has raised rates 11 consecutive times, bringing the target interest rate to 5.25%-5.50%, the highest level in 22 years.[vi]
The end of interest rate hikes would be great news for the stock market and an unbelievable “soft-landing” for the Federal Reserve. In other words, the Fed may have successfully curbed inflation just enough to cool off the economy, but not gone too far so as to ice the U.S. into a recession.
All of this leads us to wonder what 2024 will hold? While sensational predictions make headlines, the truth is, no one knows. The ‘experts’ who projected a recession for the last two years were proven to be wrong, yet again. This is not to say their data was wrong or their skills were subpar, but simply that despite our best guesses, nobody can foretell the future with certainty. As such, often a prudent investment strategy triumphs in the long-term over market timing. In other words, the biggest winners this year were those who continued to invest in line with their disciplined investment strategy. For example, making retirement savings plan contributions in 2022 hurt a little as the market dipped, but those who purchased a diversified basket of investment grade equities likely bought stocks at a discount last year that regained their value in 2023.
With the U.S. Presidential election around the corner and geopolitical tensions high, 2024 looks to be an exciting and unpredictable year, both domestically and abroad. Some say “higher for longer” insinuating interest rates will remain high for the foreseeable future, while others are already predicting the Fed will cut interest rates by next summer. If you think your investment strategy could use a review, reach out to your Certified Financial Planner™ to ensure you’re well balanced for whatever the stock market holds in the year ahead. Happy Holidays and best wishes for the new year!
[iii] Adobe Analytics
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