2023 proved to be a very interesting year in the markets and a good reminder as to why investors should remain invested, well diversified and patient. We began the year in a cloud of bearishness and finished the year in a burst of exuberance. The year-end rally occurred following Fed Chair Powell’s comments, as inflation dropped sharply and economic growth significantly exceeded expectations.
In the link below, Table 1 shows that all major indices posted double digit returns for the year, with large growth stocks leading the charge. While the equity markets posted above average returns, making up for a dismal 2022, the fixed income returns were more in line with historical norms.
Also, please note Chart 3 which indicates historical returns during various inflation environments. With inflation running at a current level of ~2.6%, this environment has historically boded well for equity performance.
Thus, we are cautiously optimistic as we move into 2024 assuming inflation continues to drop, earnings estimates show growth and the Fed changes course with interest rate cuts sometime later this year.
We close with a quote from Peter Lynch, early manager of the $25bn Fidelity Magellan fund:
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”
As always, we thank you for your confidence in Pointe Capital Management.
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