Making market predictions, particularly in the short run is often a fool’s errand. I typically stay away making them, but yet I do need a framework for making investment decisions for and with clients. For fun, here’s a look back at some of things I said in my 1/4/24 article about the upcoming year:
My assumption right now is that rates have peaked.
So far, this one has held up and I would still say it’s more likely than not we have seen peak rates.
I would expect fixed income to do much better than it has the last two years, and longer duration fixed income to even better. In addition, I believe all fixed income would be expected to do better than cash, with money market and CD rates expected to decline.
This has not happened yet, even though the Fed still indicates it is planning on 3 rate cuts.
I’m planning on 2024 being better for bonds than 2023 and not as good for stocks as 2023. I expect increased volatility in markets relative to 2023.
It has been better for bonds than 2023, but amazingly, it has also been better for stocks so far. Volatility has been low, not high.
As in 2023, I believe higher quality larger stocks look attractive. Companies with free cash flow, low debt, good balance sheets and wide moats. This could help navigate both the recession scenario if it happens as well as the higher for longer scenario if it does.
This has been accurate so far.
So far in 2024 it really has been a Goldilocks situation, with a continuation of steady economic growth. Stocks have continued to do well. Bonds have been more positive (less negative) than 2022 or 2023 because rates have been in a range vs. rising. Those who prefer cash are still getting a yield they haven’t seen in 15 years. Then again, those who have been in what seem like really good cash rates over the last 15 months have seen a lot of opportunity cost in terms of what they didn’t earn in equities.
Looking forward how you approach it depends on your situation.
Investments have seen positive returns over the last few years vs. my planning assumptions for clients. If one wants to approach it conservatively, you can use this as an opportunity to pare down risk, to raise cash for payout needs over the next 2-3 years or to pay off liabilities. Refer to my “The Market is Up…” article for more on this.
If you have a long-term time frame, though, even though we're at market highs you can make the case to stay invested and stay aggressive. For example, QQQ closed at $47.90 on 8/1/2007, before the start of the Global Financial Crisis.(1) This would have been one of the worst dates to invest, historically speaking, as markets had sharp declines through March of 2009. On 3/27/2024 QQQ closed at $444.83 .2This means if you had one of the worst possible timings in market history, you still would have nearly a 10X return over the next 16+ years. If you are young enough or don’t need access to your money, you can have the luxury of looking past the short term.
Of course, this requires you have your short-term needs met, which we talk to clients about regularly.
The stocks and other securities we manage on behalf of clients are consistent with the level of risk they want to take. I have very conservative models and very aggressive models. Because short term needs are met, we don’t have t necessarily focus on short term market predictions because we are managing for all scenarios.
I think what happens for the rest of this year primarily depends on 3 main things (and in my opinion none of the 3 are the election!).
Will inflation continue falling towards 2% or will we get stuck or even accelerate?
Will the Fed cut later this year or not?
Will the economy and corporate earnings continue to see the remarkable strength we have seen?
If inflation is cooperative and corporate earnings hold up, then I believe we look to be in a very good situation. The fed can cut AND we can continue to see growth.
If inflation remains, the Fed can’t cut and might have to raise, which presumably would be very difficult for both stocks and bonds.
If earnings hold up, much like in 2023, perhaps we can overcome the headwinds of inflation and rates, though at some point that may not be able to continue.
For now, let’s feel good about how good things have been really since summer of 2020. Being in this position at least gives investors options for how they want to view strategies going forward.
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