January 1, 2024
What a difference eight weeks makes in the markets! At the end of October, the Dow was slightly negative with the S&P 500 and Nasdaq posting respectable but not stellar gains. The stock markets have rallied since late October on the belief the Federal Reserve has ended its rate hiking campaign intended to squash inflation. The Fed last raised rates in July to a range of 5.25%-5.50%, reaching 22-year highs. As inflation comes down investors are looking forward to multiple rate cuts in 2024 with markets pricing in the first rate cut at the meeting in March and five more reductions later in the year. Encouraged by this belief, the S&P 500 has advanced more than 14% since just before Halloween, reaching new highs for the year and the highest levels since late 2021. The yield on the 10-year Treasury has also pulled back from almost 5% in late October to under 4%, helping stocks advance.
Economic data has been consistent with a soft-landing scenario in which the Federal Reserve will be able to tame inflation without triggering a recession. A mild recession is still on the table for early 2024. Inflation has continued to come down, with the Fed’s preferred measure of inflation, the core personal-consumption expenditures price index that excludes food and energy, falling to a 3.5% increase versus the prior year in October, down from a 3.7% increase in the twelve months ended September. This remains ahead of the Fed’s 2% inflation target, but the trends are favorable. Headline inflation, which includes food and fuel, is still affecting many households. The six-month annualized core inflation rate fell to 2.5%, down meaningfully from earlier in the year and a sign the Fed’s fight against inflation is on the right path. The November data for the consumer-price index and the producer-price index imply further downward pressure on the Fed’s preferred measure of inflation in November, with six-month annualized core inflation about in line with its 2% target.
So, what does 2024 bring? We expect a bit of a pullback from current levels early on and, barring any major global event, the markets should do well providing the Federal Reserve makes good on its intention to cut interest rates, which is always encouraging for stocks.
The yield on the 10-year Treasury note dipped again to 3.847%, and the yield on the two-year Treasury yield dropped to 4.315%. For the year, the major indices closed with the Dow, S&P 500, and NASDAQ at 13.70%, 24.23% and 43.42% respectively.
*Disclaimer: This report is a publication of Marchand Faries Financial Management, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgement of the author as of the date of publication and are subject to change.
