Taking Stock: Executive Summary December 31, 2023

The fourth quarter began, as most have in the recent past, with markets facing a myriad of challenges – not the least of which was inflation, which remained uncomfortably high.  And yes, Q4 got off to a rough start, with October seeing stocks decline for the third straight month as investor sentiment and confidence declined.   The Leading Economic Index (LEI), which signifies where the economy is heading in the near term, declined in October prompting the Conference Board to predict that elevated inflation, high interest rates and contracting consumer spending would tip the economy into recession. 

And then came the “Everything Rally.”  Following better than expected inflation data for October and dovish comments by the Fed, markets went on a bull run in November, with the S&P 500 closing out the month just 4% below its highest-ever level.  The rally continued during December, for a strong finish to the quarter. 

2023 will be remembered as a year of shifting economic sentiment.  2022 was brutal, and most analysts predicted a grim 2023.  “Two-in-three economists are forecasting a recession in 2023… If the economy continues to slow and quarterly earnings calls in January reveal a dour outlook for the year, corporate earnings estimates will be marked down and the market could have a renewed tumble,” reported Greg McBride, CFA, Bankrate Chief Financial Analyst, in December 2022. Wall Street strategists predicted that stocks would fall back to their 2022 lows during the first half of the year, with inflation, recession, and profit contraction the main drivers.   But the 2023 recession never came … and the stock market had a banner year, clawing back 2022 losses.  

As we look forward to 2024, we expect slower but positive economic growth, continued declines in inflation, lower interest rates and modest gains for U.S. equities.  Yes, economic headwinds persist, but we see more positive than negative.  Amid wildly changing opinions, far-off predictions, and stock market surprises, we are reminded of the importance of a long-term perspective, the danger of market timing and the importance of developing and sticking with a plan for the long run.   Together we will continue to stay the course, firmly believing this is key to success.

We are dedicated to our relationship and supporting your long-term goals through a strategy designed specifically for you -- a diversified strategy aimed at helping you meet your financial goals and objectives, mitigate downside risk, and provide a steady income stream as needed.  

As we begin a New Year, we wish you and yours a happy, healthy, and abundant 2024!

“I continue to believe that short-term market forecasts are poison and should be 

kept locked up in a safe place, away from children and also from grown-ups 

who behave in the market like children."  -- Warren Buffett

Recent Economic Data: 

Gross Domestic Product (GDP).  The GDPNow model estimate for real GDP growth in Q4 2023 is 2.5% (seasonally adjusted annual rate; estimate released January 3, 2024) – down from 4.9% in Q3 2023.  A growth rate between 2% and 3% is commonly considered “normal.” 

Unemployment.  Total non-farm payroll employment is little changed from September.  In her December 2023 jobs report, U.S. Acting Secretary of Labor Julie Su reported that “the American economy added 216,000 jobs in December and the unemployment rate held steady at 3.7%, continuing the longest stretch of unemployment below four percent in more than 50 years.”

Consumer Confidence.  Fueled by inflation concerns, the Conference Board Consumer Confidence Index, an indication of consumer attitudes and buying intentions, increased in December to 110.7 (1985=100).  

Consumer Price Index (CPI).   The CPI for All Urban Consumers (CPI-U), a measure of inflation which shows “cost of living” fluctuations, increased 0.3% in December 2023.  Over the last 12 months, the CPI-U increased 3.4% before seasonal adjustments, a significant decline from 7.1% for the 12 months ending November 2022.   

Earnings.  For Q4 2023, the estimated (year-over-year) earnings growth is 1.3%, a significant downward revision from the September 30, 2023, Q4 estimate of 8.0%.  If 1.3% is the actual growth rate, it will be the second consecutive quarter of year-over-year earnings growth for the index.  

Housing.  Privately-owned housing starts in November 2023 were at a seasonally adjusted annual rate of 1,560,000 -- a 9.3% increase over the November 2022 rate. We expect lower interest rates to fuel pent-up demand for new homes as well as existing homes.   

We are committed to serve you with the highest standard of care in keeping with our corporate mission of 

Building Relationships … Enhancing Lives.

Executive Summary Sources:

https://www.conference-board.org/pdf_free/press/US%20LEI%20PRESS%20RELEASE-Nov.2023.pdf

https://www.nytimes.com/2023/12/01/business/stock-market-high.html

https://www.bankrate.com/investing/stock-market-outlook-2023/

https://corporatefinanceinstitute.com/resources/economics/economic-growth-rate/

https://www.bloomberg.com/news/articles/2022-12-21/wall-street-strategists-say-2023-equity-recovery-won-t-be-easy?leadSource=uverify%20wall

https://www.berkshirehathaway.com/letters/1992.html

https://www.atlantafed.org/cqer/research/gdpnow

https://www.bea.gov/news/2023/gross-domestic-product-third-estimate-corporate-profits-revised-estimate-and-gdp  https://www.bls.gov/news.release/pdf/empsit.pdf

https://www.dol.gov/newsroom/releases/osec/osec20240105

https://www.conference-board.org/topics/consumer-confidence

https://www.bls.gov/news.release/pdf/cpi.pdf

https://www.bls.gov/news.release/archives/cpi_12132022.pdf

https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_010524.pdf

https://www.census.gov/construction/nrc/pdf/newresconst.pdf

https://www.morningstar.com/indexes/dji/!dji/performance

https://www.morningstar.com/indexes/xnas/@cco/performance

https://www.morningstar.com/indexes/spi/spx/performance

https://finance.yahoo.com/quote/%5EDJI/history?p=%5EDJI

https://finance.yahoo.com/quote/%5EIXIC/history?p=%5EIXIC

https://finance.yahoo.com/quote/%5EGSPC/history?p=%5EGSPC

The views expressed represent the opinion of Asset Management Financial Solutions, Inc. (“AMFS”) and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and AMFS’s view as of the time of these statements.  Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.