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January 1, 2024

“Youth is when you’re allowed to stay up late on New Year’s Eve. Middle age is when you’re forced to.” —Bill Vaughan

(a little levity but so true!)


We all hope you enjoyed a wonderful Christmas and Holiday Season. Today is the first day of the New Year. Last week, the markets finished a very good year and gave us a wonderful present. Here are the numbers for the shortened, low trading, holiday week. The S& P 500 added .33%, the Dow Jones Industrial Average gained .91%, the Nasdaq added a slight .03%, international stocks also joined in with the FTSE 100 up .23% and the MCSI-EAFE gaining -year .0023%, the 2-Year Treasury yield finished at 4.25% and the 10-Year paid 3.866%.

As we close the books on 2023, we can happily report most of the “conventional wisdom” at the beginning of the year was wrong. I will delve into that issue in the quarterly report cover letter. As today is New Years Day, I thought short and sweet was in order.

Looking at last week, no matter how hard it tried, the S&P 500 index just couldn’t close at a record high in 2023. But it came very close. The S&P 500 got as far as 4793 Friday morning, just inches from its all-time high of 4797, before slipping 0.3% on Friday but up slightly for the week. The index fell 0.6% today. Only the Dow Jones Industrial Average, down less than 0.1% on Friday, managed to get over the top when it closed at a record on Dec. 13—then kept on climbing. It finished up 14% in 2023. The Nasdaq Composite, despite its 43% rise for the year, also fell well short of a record. But who’s complaining especially with all the doom and gloom earlier last year?

The S&P 500 rose for a ninth consecutive week in its longest such winning streak since the stretch ending in Jan. 23, 2004, according to Dow Jones Market Data. The index rallied 11.2% during the fourth quarter, including a 4.4% rise in December, for a gain this year of 24.2%.

The S&P 500’s rise in the final three months of 2023 marked its biggest quarterly percentage jump since the fourth quarter of 2020, according to Dow Jones Market Data.

MSCI EAFE ETF, a gauge of developed-market stocks in Europe, Australia and the Far East, has gained almost 15% in 2023, Equities in developed markets have broadly outperformed emerging markets this year, and by a huge margin, as stocks in China have struggled.

The fourth quarter is on pace for annualized GDP growth of 2.3%, per the Atlanta Federal Reserve’s GDP Now model. The S&P 500 is on track for an earnings-per-share increase of about 3% in 2023, with eight out of 11 sectors reporting growth.

And Interest Rates?

As Barron’s columnist Nicholas Jasinski observed, the unforeseen economic strength brought surprises of its own. It forced the Fed to raise interest rates far higher than markets were expecting at the start of the year, when futures were pricing in cuts by the end of 2023. The more hawkish Fed caused bond yields to spike—and some regional banks to go bust—before violently reversing in the final months of the year, igniting a rally in the stock market. Even wars abroad and fiscal policy drama in Congress couldn’t dent investor enthusiasm for long.

Inflation, though cooling, is still omni present and until we see some real price reductions the pain will continue into this year. There are several headwinds forming for this year, but so far the Santa Claus rally has not disappointed.

The prolonged year-end rally is largely down to shifting interest-rate expectations for 2024, after the Federal Reserve opened the door to rate cuts at its final meeting of the year. But investors are unlikely to forget the part played by artificial intelligence and the Mega cap tech stocks earlier in the year. So, will 2024 bring continued broad market participation? So far so good.

So to all of you, enjoy “Bowl Season” if you are following college football.

Happy New Year from all of us.