U.S. stocks ended a topsy-turvy 2023 near records despite bearish predictions. There are so many highly paid so-called market and street analysts, but few, if any, managed to predict the robust market comeback. Maybe they are as confused as the employees at the Federal Reserve bank, who seemed clueless about inflation and the impact of pouring trillions of government dollars into the economy.
The inflation peaked at 9.1% before the Fed started to take strong measures. So, 2023 was a good year for the market after all. Once they woke up, the Fed raised interest rates at the fastest clip since the 1980s. There were other areas of noise and problems with the economy such as the regional banking crises and impact from global wars. Yet stocks kept climbing.
The S&P 500 finished the year up 24%, just 0.6% from its January 2022 record. The Dow Jones industrial average advanced 14% to top 37000 for the first time and set several record closes in the final days of 2023. The mania surrounding artificial intelligence and big technology sent the Nasdaq Composite soaring 43%, the best year since 2020. This is a far cry from the doom and gloom analysts predicted in the beginning of 2023, when they were predicting a market recession. Instead, inflation continued falling, consumers kept spending and the unemployment rate fell to 3.4%, the lowest level since 1969.
2023 was not without turmoil. Soaring interest rates caught a number of regional banks by surprise. At Silicon Valley Bank, deposits and the value of its bond portfolio fell sharply, eventually triggering a bank run and evoking memories of the global financial crisis more than a decade ago. First Republic Bank had problems and was acquired by JP Morgan Chase.
At the same time, corporation are making record profits and CEOs across the board are being paid more than ever, some north of $100 million per annum. Major banks are paying their leaders north of $30 million per year. This makes no sense at all but is a reflection of greed and the inequality within the American society. Truly disgusting. The average worker makes about $56,000 per year. There will likely be more layoffs in 2024 as the corporation are trying to improve profit margins and getting more efficient. Firms will become more efficient as better and more sophisticated technology is being implemented.
Some investors are predicting a downturn in 2024, cautioning that it takes time for rate increases to ripple through the economy. In the past 11 Fed rate-hiking cycles, recessions have typically started about two years after the central bank begins raising interest rates, according to analysts at Deutsche Bank. This hiking cycle started in March 2022.
The correct action seems to be to ignore analysts’ advice and predictions and invest with a free and independent mind. Diversify, focus on stocks you believe in and look at crypto and technology options. The Fed will likely start trimming interest rates and this will help reaching new market records. Everything is looking up. The 2023 rally pushed up prices of assets from gold to bitcoin to risky corporate bonds and investments in far reaching corners of the stock market. Bitcoin prices more than doubled and the S&P 500 ended the year in a none-week winning streak, it’s longest rally since January 2004. Take a deep breath and reset the focus for 2024. Find your own path with wise investment decisions and a diversified portfolio. And remember to ignore all analysts’ predictions.