Solid gains for both stocks and bonds gave investors a November to remember. Increasing confidence in a soft landing for the U.S. economy has shifted the focus away from rate hikes and toward eventual cuts, helping to pull long-term interest rates down and encouraging market participants to pay higher prices for stocks relative to expected earnings. Patient investors have been rewarded in 2023 and will continue to be.
With the release of LPL Research’s Outlook 2024: A Turning Point, we reflect on the volatility of the last two years and look ahead to a more balanced future. Going forward, we think the combination of corporate America’s solid fundamental foundation and the support from lower interest rates sets the stage for more stock gains in the coming year. The slowing economy will help ease inflation. Less inflation will help promote interest-rate stability. And earnings are entering their sweet spot following an excellent third quarter earnings season.
It doesn’t mean that 2024 won’t have its own surprises or potential challenges. Reflecting on 2023, we certainly experienced our fair share of unexpected events. There were positives, such as the strength of the U.S. economy and the stock market, despite the Federal Reserve (Fed) raising interest rates. On the downside, we faced a regional banking crisis driven by interest rate risk and saw escalating conflict in the Middle East, reminding us that markets are seemingly constantly overcoming obstacles.
So where does that leave us for the first half of 2024? We do expect the economy to soften mildly, which is what the Fed has been looking for over the past two years. The uncertainty surrounding a potential recession may limit stock gains as 2024 begins, but it could also provide a silver lining if the Fed eases lowers rates as a result.
The rate and earnings cycles are likely to have a greater impact on stocks, as investors focus on the anticipated decline in interest rates and return of growth in earnings. With this in mind, we see growth opportunities in bonds, which should offer decent returns with lower risks compared to stocks. Ultimately, we expect both stocks and bonds to perform well and provide ample opportunities.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of December 11, 2023.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Past performance does not guarantee future results.
Asset allocation does not ensure a profit or protect against a loss.
For a list of descriptions of the indexes and economic terms referenced, please visit our website at lplresearch.com/definitions.
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