2023 Year-End Letter

By David K. MacLeod, CFA, CFP®

Despite numerous risks, the markets climbed “a wall of worry” and reversed much of the losses from 2022. Most of the gains were earned in the last nine weeks of the year. The last time U.S stocks increased for nine consecutive weeks was in January 2004. Large cap stocks rose 26%, small cap stocks increased 16%, and international stocks gained 18% in 2023. Bond funds gained between 6 – 9% thanks to higher yields. Oil prices fell 10% which brought some relief at the gas pump.

Most economists expected a recession in 2023, according to a Wall Street Journal survey conducted in 2022. Not only did the U.S. avoid a recession, growth accelerated to a 5.2% real gross domestic product growth rate in the third quarter. Economists aren’t usually this wrong but it does serve as a good reminder not to put too much faith in short-term predictions. That said, we wouldn’t be surprised if economic growth slows down this year. The unemployment rate remains very low and the job growth rate will probably slow to <1% growth by later this year.

Due to expectations of slowing growth and inflation getting under control, the Fed is likely to cut interest rates. This would lead to both lower money market yields for savers, and lower mortgage and auto loan rates for borrowers. However, we don’t expect interest rates to drop back to near-zero where they were for much of the past 15 years due to all levels of U.S. government running high deficits and an aging population.

As we head into a presidential election year, we do expect higher volatility especially around the primary season. We want to stress that we don’t advocate trading or market timing around election forecasts and fears. While election years can be nerve-wracking, we don’t think there are any reliable trading strategies around elections.

Please don’t hesitate to give us a call if you have any questions about your personal investment portfolio.