Stock Market Insights: Staying alert in the 2024 markets

DR. RICHARD BAKER, AIF®, is the founder of and an executive wealth advisor at Fervent Wealth Management. https://www.facebook.com/DrRichardBaker

Be alert and active. Our daughter drove to Dallas this week along with five other cars for a young adult conference. One of the other girl’s cars was in a minor accident, and another girl got a ticket for speeding in a small town in Oklahoma. She asked our daughter, “You were driving just like us, so why didn’t anything happen to you?” She replied, “Because I am a really alert driver and don’t get distracted.” Last year was good for the investors who didn’t get distracted.

Stocks were even better than I expected in 2023. The Dow Jones finished at an all-time record high on December 28, and the S&P 500 almost hit a record high. Even bond portfolios finished strong. But getting those strong finishes wasn’t a smooth investing ride for those paying attention. Stocks had three peaks (January, July and December) and two difficult valleys (February and October) but ended a furious late-year rally to reach its third peak.

The market in 2022 and the first ten months of 2023 dealt with the repercussions of the Federal Reserve’s (Fed) attack on inflation. It wasn’t until November of 2023 that investors felt confident that the Fed had stopped its rate-hiking campaign.

I think 2024 will be about the markets returning to a more normal cycle that is less dependent on Fed decisions. Inflation seems to be under control enough that the Fed has finished raising rates. So, investors in the new year will need to focus on how to benefit from this Fed policy shift by overweighting into investments that benefit the most from declining interest rates.

I expect stocks to rise when the Fed lowers rates. I believe this because stocks have historically risen when interest rates fall. This is because when rates drop, loans become cheaper, leading to business spending/ expansion and higher earnings potential, which could increase stock prices.

I don’t think we will have to wait long for the first interest rate drop. It could come as early as June and maybe even March. I encourage investors to focus on the long term. This year’s market cycle won’t be smooth either, making it extremely difficult to predict where stocks are going, reminding us that “time in the market” is a better mantra than “timing the market.”

The year may not bring quite as much joy to your portfolio. Still, with inflation down, unemployment low, corporate fundamentals in good shape, and the Federal Reserve poised to cut interest rates, these are the ingredients for stocks to rise again this year. I would not be surprised if stocks increase with mid-to-high single-digit returns in 2024.

Unfortunately, our daughter inherited her fast driving from her dad. When I talked to her on the phone, I asked her if she was going to drive slower on the way home, “Oh no, I’m just teaching the girls to be more alert and active when it comes to speed traps.” Investing-wise, that’s what my clients hire me to do: stay alert and active on their behalf in the markets to get them through difficult parts of the trip

Have a blessed week!

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