What just happened in 2023 financially in the US? For professionals, it was one word: Surprise!
After suffering an 18 percent plus drop in 2022, the S&P 500 index gained 26.4 percent, almost back to its all-time high point of January 4, 2022. The gargantuan tech companies led the Nasdaq 100 up by over 53 percent. Other stock indexes gained lesser amounts, but even bonds had a positive total return after several years of net losses. Bonds did not make up for losing 14 percent or more in the prior year though.
As many investment managers, we took a more conservative approach and favored shorter term Treasury debt for a guaranteed positive return. Most of our clients desire less risk and more certainty. Having lost far less than stocks did in 2022, our intermediate term results are still quite positive. Losing as little as possible will continue to be most important for all but high-risk investors. Are all the worries of the past 18 months over? Most still exist and some are even heightened, war with Iran for example. The national debt is approaching or has passed a tipping point. But investors seem to remain quite optimistic.
The Stock Trader’s Almanac (Wiley & Sons, 2024) has for decades reported on the January market indicator. If stocks are higher after the first five trading days of the year and indexes are positive at month end, probability is good for a higher year to continue. This year, the first five days saw a very slight decline in values for the Dow 30 and S&P 500 indexes. However, the high-flying Nasdaq 100 had dropped by over 1 percent.
The betting money says that the Federal Reserve will be lowering interest rates during the year which is generally good for stock prices and bond values both. The fourth year of the US presidential term cycle also would predict a decent stock market for the year.
Signs still point to a recession, but I consider the current strength of employment to indicate a lesser risk of a great drop in Gross Domestic Product (GDP). There certainly seems to be plenty of money still circulating although the M-2 money supply has reduced.
As we have seen, surprises do occur. Remember the mantra that Mr. Market will do whatever it takes to fool the greatest percentage of investors. Also remember that a relatively quick turtle most often wins the marathon over the quicker, but easily distracted and inconsistent, hare. Be patient and sleep better.
Stay tuned at least until the end of January to check out this one indicator. Investors always look out at least 6 months and longer to judge whether conditions will be improving or worsen. Fortunately, most things about which we worry do not happen. This helps me to be optimistic in the long run.
(Statistics from Worden Bros., Inc., TC2000 software, 2024.)
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)