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  • Writer's pictureNate Baim, MBA, CFP®

Five Insights to Understand Markets in 2024


Happy new year! As we start 2024, we should reflect on 2023. We should also ask ourselves, "What do I need to do better this year with my personal finances?"

Your financial plan is more than just investments. But, it is your investments which are a key variable in growing your wealth. So, in this video, I'll cover 5 key lessons and insights from 2023 that could continue to drive markets and portfolios in 2024.

First, this chart shows just how strong a year 2023 was for both stocks and bonds. With reinvested dividends, the S&P 500 gained 26% while the Nasdaq was up nearly 45%. The S&P 500 is now only six-tenths of a percent away from its previous all-time high from two years ago.

The U.S. Aggregate index of bonds gained 5.7% after falling into a bear market the year before. While bonds have not made up for all their prior losses, last year's performance shows that bonds still play an important role in diversifying portfolios.

International stocks, small caps, and a variety of sectors all performed well too. Only commodities struggled last year as oil and other commodities fell, but this is after two extremely strong years when they were some of the best performing asset classes.

Second, this chart zooms into the bond performance from the prior chart. The red dots show how low the bond market index fell each year before rebounding. Last year, bonds were down 7% during the banking crisis but fully reversed course, ending the year on a strong positive note.

It's easy to see from this chart that bonds tend to be positive which is why they help to balance stock market volatility. However, investors should expect the occasional bad year depending on interest rates and inflation.

Perhaps the biggest driver of markets and the economy over the past few years has been inflation.

This third chart shows the impact inflation has had on Fed policy - specifically, that it drove one of the fastest rate hike cycles in history.

One reason markets performed as well as they did in 2023 is that inflation has improved dramatically. You can see on the right hand side of this chart that the Fed expects that it could begin to cut rates in 2024 by 75 basis points, or three-quarters of a percentage point.

Market-based expectations are anticipating double this number of cuts (keep in mind these market-based expectations are often not met - and the market's expectations could be too optimistic).

If this happens, falling rates could be a tailwind that helps to support markets and risk assets, representing a reversal of the bear market trends from two years ago.

Fourth, this chart shows just how strong the economy has been. In the third quarter of 2023, for instance, GDP grew 4.9% on a quarter-over-quarter, annualized basis. This was driven by consumer spending and a rebound in business investment as interest rates stabilized.

This means that the recession that was widely anticipated in early 2023 never occurred - another reason that markets performed as well as they did. However, many expect the economy to slow from its recent pace. So, investors should keep their expectations in check.

Finally, it's important for investors to not become complacent after a great year for markets. Every year experiences market pullbacks driven by unexpected events. Last year, these included a banking crisis, rapid Fed rate hikes, dysfunction in Washington, escalating war in the Middle East, cracks in China's economy, and more. In the coming year, investors will focus on possible Fed rate cuts, a presidential election, and more.

Thus, the lesson of the past year is that investors should continue to stay invested and diversified in an appropriate portfolio and continue to follow and manage their financial plan. This is still the best way to achieve long-term financial goals.

I hope you have a wonderful start to 2024. If you would like to discuss any of these topics in more detail, please don't hesitate to reach out. I look forward to speaking with you.

Have something on your mind?

Nate Baim, MBA CFP(R)

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