Market Outlook

In our Winter 2024 outlook, we wrote about what we thought would be the most important factors that would impact investments in 2024, including:
(1) Will inflation continue to fall as expected towards the
Fed’s 2% target?
(2) Will there be a recession?
In January, a large majority of investors believed that the Fed would successfully bring inflation down from a very high level to near its 2% target by the end of 2024 while avoiding a recession. In this update, we analyze recent inflation and economic data and provide our opinions as to how it changes the outlook.

As we start 2024, we make the following observations about what we believe are the most important uncertainties that will impact investments in 2024. (1) Will inflation continue to fall as expected towards the Fed’s 2% target? (2) Will there be a recession? (3) Will artificial intelligence adequately deliver on its promise in 2024?Notably, investors’ opinion on the first question is resoundingly “yes.” Investors’ opinion on the second question has shifted during the last several months and there is now a strong consensus opinion that the answer is “no.” Based on the performance of technology stocks in 2023 and high relative valuations, it seems clear that investors expect a lot from artificial intelligence in 2024. Read along as we explore these questions in more detail.

As we turn the calendar to the closing months of 2023, we look back and consider how the year has unfolded compared to expectations at the beginning of the year. A year ago, the consensus opinion was that economic conditions would be poor in the first half of the year, likely including a recession, and the economy would recover in the second part of the year. Most investors expected a weak first half for stocks, with a rebound later in 2023. Contrary to the consensus belief, the economy proved far more resilient than expected through September, driving equity returns far above expectations in the first half of 2023 as investors’ calls for a 2023 recession went silent by mid-summer.

The phrase “if it is not one thing, it is another” implies that when dealing with financial markets and the economy, there is often a continuous cycle of challenges or issues. It suggests that as one problem is addressed, another one arises. This statement reflects the dynamic and ever-changing nature of financial markets and the economy.