2023 was an interesting year, because while overall the economy and the financial markets did, by almost all accounts, very well during the year, if you talk to most people, they felt the year was a struggle.  I think a couple of things contributed to this. The first was a kind of hangover from Inflation. Inflation, by most measures, has slowed, but that still leaves prices at elevated levels from their historical averages.  In some cases pay has increased, but typically not enough to cover the inflation we have had for the last two to three years. Consumers are still feeling stretched, although that seems to not have slowed their spending. 

The second thing that has people feeling out of sorts is the increase in Geopolitical Risk we have seen.  In February of 2024, we will see the second anniversary of the Russian invasion of Ukraine and there does not appear to be any likely end to the fighting.  In 2023 we saw the Palestinian attack on Israel and Israel responding by attacking the Gaza Strip.  Even in the Western Hemisphere we have seen Venezuela vote to annex a large portion of Guyana.  The level of uncertainty in the world seems to be on quite the upward trend.

As we look to 2024, we see a number of factors come into play regarding the financial markets and the economy.  First of all, it is a presidential election year.  Since World War II, the equity markets have only been down twice during a presidential election year.  Of course, there is no guarantee regarding that this year, but it is typically in all elected officials’ interest for the economy to be good if they want to be re-elected.

The next question for 2024 is what will the U.S. Federal Reserve (the Fed) do with interest rates?  Inflation seems to have been contained.  Additionally, job openings have started to trend downward which is typically a sure sign that the economy has slowed.  There is a lot of discussion on when the Fed may start lowering rates to stimulate the economy.  It may be some time though before they actually start that process in our opinion.  The dangers of reigniting inflation are still very strong.

Beyond our borders in the United States, we continue to see some opportunities internationally, with the additional risk international investments bring along with them.  We still have some serious concerns regarding China and their ability to thrive given demographic trends and their place in a post-globalization world economy.  Europe is also in the process of redefining itself due to the same issues, along with the conflicts surrounding its outer boarders.

Finally, we believe we will continue to see rapid growth in technology, specifically in the Artificial Intelligence (AI) space.  AI seems to be following a normal adoption path with last year everybody getting very excited and trying things like ChatGPT, then the “newness” wears off, and those who are actually going to use the technology start building things.  It is very reminiscent of the “dot.com” era of the internet, where everyone jumped in only to find it wasn’t what they expected and jumped right back out in the early 2000s.  Fast forward to now and see how much the internet has spread into almost every part of our lives, for good or bad.

It is hard to believe we are almost a quarter of the way through a new century in 2024.  For our clients and investors, we continue to focus on the long-term with your goals in mind.  If your goals or your level of comfort with risk and volatility have changed, please reach out to us so we can make the appropriate changes in your plans.

We sincerely, thank you for your continued trust and we look forward to working with you in the new year! 

Kevin P. Sullivan, CFA, CFP®, AIF

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