On Air with Altair: 4Q 2023 Market Review Video
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FED’S PIVOT SHOULD PROVIDE A WELCOME TAILWIND
The Federal Reserve has signaled that its playbook will soon call for a reverse of direction. After raising the federal funds rate to its highest level in 22 years, the Fed will finally begin lowering it. The biggest risk to that timeframe would be a resurgence of inflation, most likely due to the recent disruption of global shipping routes. But so far, we see inflation remaining on course toward the Fed’s 2% goal. Whenever the pivot begins, it should provide a tailwind for businesses, consumers and markets alike.
ECONOMY ON COURSE FOR SOFT LANDING
A U.S. economy that many expected to be mired in a recession by now may avoid one entirely. The economy expanded at a pace of over 3% in the fourth quarter and all of 2023 due to a resilient labor market that enabled strong consumer spending. While there is no assurance of a soft landing, the trend is increasingly positive. There are a few risks that temper our optimism, including weakness in some key indicators and the delayed impact of rate hikes, but we believe the positives outweigh the negatives and feel the economy remains in a strong position.
MORE BALANCED MARKET HOLDS PROMISE
The group of tech giants known as the Magnificent Seven carried the stock market for most of last year, but we were encouraged that the end-of-year rally saw a broadening out of market participation. A more balanced market will be key to how the market fares in 2024, as we transition from a focus on rates to a focus on corporate earnings. The outlook is certainly promising, as earnings for the entire S&P 500 are forecast to rise by over 10% this year. Rate cuts at a time when profits are growing could generate positive momentum, and can propel markets to further new highs in 2024.
Both inflation and the economy are trending well at the start of 2024.
As a result, we believe the Fed to make multiple rate cuts this year, although fewer than the five or six that the markets expect. But even three cuts would be a lift for business and consumer sentiment, and supportive of both equities and bonds in 2024.
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