December 31, 2023

As we wrap up the year and deck the halls with investment insights, let’s put a bow on this month’s market and economic trends.

Historic Bond Market Rally: a season of surprises– December 2023 marks a historic turnaround for bonds, with November recording the 8th best month for bonds since 1926. This unprecedented rebound, following a six-month losing streak (the first in history), ushers in a wave of bond market optimism. This rally offers us the adage, “every cloud has a silver lining,” and a glimmer of hope for fixed income investment as we approach the New Year.

Resilience of the 60/40 Portfolio: the traditional 60/40 stock/bond portfolio, considered the most popular of “all weather portfolios,” saw a notable bounce back in November 2023 from the absolute rout we saw through the end of 2022. This recovery demonstrates the enduring wisdom of diversified portfolios, especially considering that stocks and bonds had jointly declined for three consecutive months earlier in the year, a rare occurrence going back to 1926. It reinforces the importance of diversification and staying the course amid uncertain market fluctuations.

The Volatility of Bond Markets: 2023 has been characterized by significant bond market volatility. The frequency of daily bond market returns swinging by +/- 0.5% or more reached new heights, underscoring the need for bond fund managers to maintain strategic discipline and tactical situational awareness. This volatility reminds us of the dynamic and unpredictable nature of markets and the importance of being committed to principles while preparing for risks and opportunities.

Stock Fund Outflows and Future Implications: a head-scratching trend this year has been the outflow from stock funds. Historically, such outflows have often been followed by robust stock returns in the subsequent year, which suggests that the markets reward patience. Warren Buffet likes to say, “the markets transfer wealth from the impatient to the patient.” This is another silver lining for investors who hold the line and remain committed to long-term investment horizons.

The Power of Quality: in 2023, stocks that are characterized by their high-quality earnings, dividends, and growth, resisted market forces coming from economic headwinds. Larger-cap companies with clean balance sheets and sustainable earnings models proved to be the stalwarts of the market. As we enter a potential slowing economy in 2024, we expect to see an increase in quality factor exposures amongst our managed equity funds.

Opportunities in a Fed-Hold Environment: with the Federal Reserve on hold and inflation showing signs of abetting, 2024 presents a strategic opportunity to step out of cash and capitalize on higher bond yields. The period between the Fed’s last rate hike and the first cut has historically seen the best performance for core bonds, indicating potential gains in the fixed-income sector.

Holiday Fun Fact: Did you know that “Auld Lang Syne,” often sung to bid farewell to the old year at midnight on New Year’s Eve, was originally a Scottish poem written by Robert Burns in 1788? The song’s title translates to “times gone by” and is about remembering friends from the past and not forgetting them.

Let’s bid farewell to 2023 and usher in 2024 with a reminder that historical insights and diversified strategies help us navigate the ever-evolving investment landscape. Stay the course, and if you have any questions or anticipate life changes, please give us a call to review your financial plan and investment strategy.  In the meantime, here’s to a prosperous and insightful Happy New Year!