Signals or Noise? We look back at 2023.
As we welcome 2024, let's reflect on 2023 through a snapshot below. This chart encapsulates key moments, marked by blue and red dots for market highs and lows, respectively, and green for new all-time highs. Scary news gets views, clicks, and eyeballs, and last year, like most years, gave rise to all sorts of unsettling headlines and stories.
Despite the hustle of news, it's crucial to note that headlines, whether positive or negative, don't always align with stock market shifts. The intentional complexity of the chart underscores the market's resistance to immediate news impacts. To build lasting wealth, it's beneficial to resist reacting impulsively to these fluctuations and focus on long-term strategies and trends, whether up or down.
What we can’t see from the 2023 total return is that the day-to-day experience was more complex. Here are some interesting insights: the market dropped nearly 10% from August to October; the 9 weeks ending the year marked the longest winning streak of 2023; just over half the trading days were positive (54%) and just under half were negative. In summary, the 2023 total return obscures the intricate day-to-day fluctuations, including that notable 10% market drop and the end-of-year winning streak.
Turning to interest rates, the Federal Reserve and inflation defined 2023. While it may still feel as though prices for everything from food to gas to airline tickets and more are high (and they are), a few milestones inspire hope that inflation is not increasing quickly anymore. That translates into the Fed’s decisions and as shown in the panel, the federal funds rate rose about 1% over the first 7 months of the year and has held steady since then. We continue to state here and in other public forums that our view is that 2024 will include interest rate cuts by the Federal Reserve and that will be a tailwind for investors in both stock and in bonds.
In closing, we remind you that the hustle of the news cycle is fraught with noise that is not relevant for long-term investment trends. Stock market shifts can be quick, whether positive or negative and seeking signals indicating trends, up or down, resulting in more productive investment decisions than quick reactions to noisy headlines.