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Q4 2023 - Did They Get it Right?
I can’t believe that 2023 is already coming to a close. It’s been a wild year with bull and bear markets intermixed with some astonishing events throughout the world including bank failures and multiple wars. 2023’s caution has turned into 2024’s courage as the economy and markets were able to beat incredibly low expectations in 2023. They were supported by the long and variable impacts from years of easy monetary policy and massive amounts of fiscal stimulus. In 2024, expectations are much higher as the markets have rallied strongly in the past two months and while everyone is emotionally bullish, they are still intellectually bearish and likely to stay that way until leadership changes (Leadership meaning the “magnificent 7” and tech). Once leadership starts to broaden outside of the magnificent 7, it hopefully will bring us back to long periods of boredom and markets grinding higher punctuated by moments of terror as unexpected news rattles markets. We are almost always bullish over the long term as evidenced by the chart below showing the length and duration of typical bull and bear markets.
Where does that leave us? We expect US equities to continue to outpace developed ex-US and emerging markets given their higher growth prospects, stronger earnings and economic resiliency, and greater exposure to near-term benefits of fast developments in AI. But because US economic growth is expected to slow in 2024, with a possible recession on the horizon, owning bonds mixed with high quality stocks should see you on the path to prosperity. Amid the recession vs. soft landing debate, we continue to view 2024 as one filled with smaller “rolling recessions", anemic growth and high borrowing costs coupled with a strong labor market. Geopolitics are likely to remain the main source of market volatility and despite their unimaginable human toll, the 2 ongoing wars had only a marginal impact on most markets around the world in 2023, which is consistent with historical precedent. Geopolitical developments are difficult to forecast, but we anticipate they may again take a back seat to the general economic outlook as the main driver of markets in 2024.
Always remember that you must invest for the long term as the graphic below shows the probability of various life expectancies. I would expect these numbers to climb given advances in medicine and biotechnology.
As I’ve been prone to do recently, I’ve made a donation in lieu of holiday cards/gifts to the Skin Cancer foundation as this disease is near and dear to me. If you’re in the giving mood, I highly recommend taking a look at Donor Advised Funds. Along the same train of thought, you can now gift $17k ($34k for married couples) annually to anyone without worrying about gift taxes.
Hopefully we’ll see some snow in the coming weeks and you’ll be able to read these links while huddled around the fire. Will the Cybertruck be the death of Tesla? I know that ChatGPT is being used by students to write papers, but now some publishers are getting lazy as evidenced by Sports Illustrated latest snafu with AI generated content. As an amateur beekeeper, it’s hard enough to keep bees and not have to worry about pesiticides. Here’s a favorite of my stockpicker friends – some “top tech picks” for 2024
Have a great holiday season.