What a difference a year makes! As we began 2023 we featured some of the common doomsday predictions that we found in the media:
Stagflation Will Rule 2023, Keeping Stocks in Peril, Bloomberg, November 27, 2022
Outlook: 2023 Recession Likely Deeper and Longer, Forbes, December 31, 2022
Brace for a Recession Next Year. But the Outlook Isn’t All Doom and Gloom, Barrons, December 22, 2022
Wells Fargo Investment Institute 2023 Outlook: A Year of Recession, Recovery, and Rebound, WSJ, December 9, 2022
Despite all of the doom and gloom we said in our January 6, 2023, article “there are good reasons to be optimistic. First, inflation is coming down, though from very high levels. Secondly, consumers are burning through their cash levels built-up from the Covid stimulus.
Lastly, the labor market remains strong, but wage growth is slowing – a good combination for a soft landing. Given the amount of pessimism in the market I lean toward the optimistic case.”
We highlighted at our May conference that inflation was the economic indicator to watch, and that the market would rise, and fall based on inflation expectations. We noted that inflation could fall without a recession and there was good reason to believe inflation would continue to moderate.
As we look back we can now see that 2023 was indeed a very good year. The S&P 500 rose 26.2% for 2023 and the bond aggregate rose 5.53% as inflation as measured by CPI, fell from 6.5% at the beginning of the year to 3.1% in December.
Of course, we also need to point out that the gains of 2023 were merely a recovery of the losses of 2022. The S&P 500 index began 2022 at 4,778, almost the same level as the December 31, 2023, level of 4,782, making the S&P 500 return for the 2-year period virtually zero. For now, we will focus on the positive. As we close out 2023, the stock market has recovered its 2022 losses, inflation has fallen dramatically, and the economy remains fairly strong.
Next week we will highlight some of our expectations for 2024. Happy New Year!