As the end of the year approaches and we look ahead to 2024, we wanted to share some key insights that may shed light on our investment outlook.
Market Update for Q4 2023
Stocks have largely moved higher in 2023, supported by contained banking concerns, moderating inflation, resilient labor markets, robust economic growth, and an increased likelihood of a “soft” or “no landing” economic outcome. With that said, more recent concerns over higher-for-longer interest rates and geopolitics have driven an increase in volatility. Divergence in performance across asset classes and sectors, such as Growth vs. Value stocks, has led to enhanced rebalancing opportunities.
The backdrop of higher-for-longer interest rates drove bond yields higher for much of 2023, weighing on bond returns. On the other hand, less liquid and credit-oriented strategies have performed relatively well.
Mission Wealth Actions
Based on the macro backdrop and relative performance during the course of 2023, amongst other actions, we have taken the opportunity, where appropriate, to:
- Tax-loss harvest select positions within taxable accounts.
- Add to small cap stocks.
- Trim Growth stocks in favor of Value stocks.
- Add to real estate exposures.
- Broadly increase our allocation to alternative investments.
Given the trend towards higher interest rates this year, we maintained a lower duration profile than the broad bond market, though have extended that over recent months.
Economic growth forecasts have consistently been revised higher through the course of 2023, with less impact than feared from regional banking concerns, while labor market strength and consumer spending have underpinned the economy. As a result, the chances of a “soft” or “no landing” economic outcome have increased. However, tighter credit conditions and a slowdown in the labor market may weigh on economic activity moving forward.
Inflation has moderated but is expected to stay above the Fed’s target of 2% over the near-term. The Fed may pause interest rate increases but is likely to take a wait and see approach to monetary policy moving forward, and thus is unlikely to cut rates for some time yet. To this end, we believe we have already entered a structural shift with respect to monetary policy, where the years ahead will be marked by higher interest rates and Quantitative Tightening relative to the years’ post-2008 through 2021.
Outlook for 2024
Based on historic experience, a Fed pause would be supportive of both stock and bond returns. Longer-term, we believe expectations should be reset for stock returns more in-line with historic averages of mid- to high-single digit annualized returns, given the structural shift in monetary policy. Bond yields are more attractive today and may be supported by macroeconomic dynamics. We believe alternative strategies offer attractive risk-adjusted return potential and income, which may be increasingly important should we experience a moderation in stock market returns in the years ahead.
For a deeper understanding of these insights and investment implications, we invite you to explore the full Quarterly Market Perspectives report by clicking the link below. Staying informed and adaptable is key to achieving your financial goals.