The Wiser Financial Advisor Podcast

Get Real. Get Honest. Get Clear.

Forecast 2024

In this episode Josh Nelson, CFP® and Jeremy Busch, CFP® do a quick overview of how the economy fared in 2023 and how 2024 may take off from there. Taking into account that 2024 is an election year and that there are a number of global insecurities in play. The question is will the economy follow the historical course of years 1 through 4 of a presidency? Will national and/or world events affect the economy? Tune in to get more thoughts and perspectives about these and other questions.


Wiser Financial Advisor – Forecast 2024

Josh: Hi, Everyone. Welcome to the Keystone Financial Services studios. It’s Josh and Jeremy here today. We are Certified Financial Planners, and that’s important because that is the gold standard when it comes to our industry. We cover a number of different topics; it’s not just your investments that we’re looking at. We’re looking at cash flow and how everything interacts in all areas of your financial life. We’re holistic and comprehensive.

Disclosures: Obviously, we’re not going to guarantee anything. These are our opinions at this point. I think you’ll enjoy the presentation, but just know that even the experts managing the biggest portfolios don’t know for sure what will happen in the future.

Jeremy: So, where do we go from here? We’ll take a look at what happened in 2023.

Josh: I was at the Financial Conference exactly a year ago and people were extremely pessimistic on the economy back then. And yet, we ended up having one of the best stock market years ever. So yeah, it’s important to recognize that even people with all the information can’t predict the future. Certainly the stock market really defied expectations.

Jeremy: It really did. Going into 2023, we were thinking this is gonna be a rough year. But then in hindsight, we look at it and the S&P 500 was up over 20%.

Josh: Which underscores why we don’t try to time the market. If we had done that a year ago, that would not have been good, and we would have missed out on a really good stock market. That highlights a lot of the advantage in working with professionals for your portfolio: We can help take the emotions out of things and think more strategically for long-term successful investing.

Jeremy: As we know, 2024 is an election year. People are wondering what kind of things to be looking at. During Biden’s presidency, the market did OK in 2021, not so good in ’22, really good in ‘23. So this year we’re expecting ( if history is our guide), that it should be an OK year. And of course, if we look on a long enough time frame, the market really doesn’t care. The market is gonna do what it does.

Josh: Yes. And the thing is with politics, it’s not that it doesn’t matter. Certainly there are a lot of personal feelings around people’s views and so forth. And that’s not to say that policy doesn’t affect the economy. But at the end of the day, the economy is really just made up of consumers and businesses for the most part. And regardless of what the outcome is, people are going to figure it out and move on. That includes us. Tax rates go up, they go down, they go sideways. We’ll adapt to it, but everything’s not going to just shut down because of one President or another, though there could be a lot of swings in the market.

Jeremy: And as it sits right now, the bull market is still alive.

Josh: With profit margins increasing, that’s going to increase stock prices. It really does come down to earnings and company profits for what makes stock prices go up over time. And we are experiencing earnings growth by and large—not in every sector but certainly earnings growth is a good thing in the equation as far as expecting stock prices to go up.

Jeremy: And of course, we always talk about average years in the market and 9% as an average, but how often do we actually hit that average?

Josh: And that’s averaging out the S&P 500 over a lot of years back to1950. Sometimes it’ll be higher than 9%, sometimes lower than 9, but there’s only been four times that it’s gotten close to 9 over the last 70 years or so. So yeah, that’s why you see the swings in your returns. Nobody likes to see a down statement, but that’s just the reality. That’s also why it’s so hard for people to get good results over time—because left to their own emotions, people won’t make good decisions. Fidelity has done studies on this, and found that the best performance was among people that weren’t logging into their accounts all the time and trading all the time. It’s human nature to want to feel like we have control, but that doesn’t tend to work.

Jeremy: Last year we talked about signs of recession and what they were saying.

Josh: The Fed was calling for a soft landing, and so far it seems like they might actually get it right. Never mind the fact that they created the inflation problem to begin with, when right after the pandemic they injected trillions of dollars into the economy, which created an inflation problem. But it seems that they’ve gotten it right as far as getting inflation to come back down.

Jeremy: Which I think we’re both kind of surprised at. A soft landing by the Fed has been done maybe five times in the last 100 years, so this will chalk up number six, and it’s fairly impressive. Not easy to do.

Josh: So that’s one thing we should be aware of, although we’re hoping for rate decreases this year. We could see one or more interest rate decreases. So far, the Federal Reserve has been much more concerned about inflation and making sure that it really is going down. A lot of people are watching what the Fed is saying, and the indications of inflation as far as where things might go.

Jeremy: And when we look at inflation and the things that play into it, the labor market is a big part of that. And honestly, right now the labor market is still very strong.

Josh: And we’re still in this period of time in America where we’ve got 10,000 baby boomers hitting age 65 every day. That’s a lot of people. And for many of our clients, that’s their trigger for retirement because they qualify for Medicare and they’re coming up on Social Security eligibility for full benefits. A lot of people use that as their opportunity to leave the workforce. So, some of what we’re experiencing is because of the lagging effects of the pandemic, but it’s also that a lot of people are leaving full-time positions. Maybe those positions are being replaced by part timers. There’s some indication that people are taking on some extra debt as inflation has ticked up. But by and large, people have money and they’re still spending it. Over the last year, people’s home equity is still there. Most areas of the country haven’t seen a drop off in in housing prices. And of course people’s stock accounts and bond accounts, pretty much all asset classes, went up last year.

Let’s say we get a number of inflation reports that are higher than expected, that could put a damper on those rate cuts that the markets are counting on. But consumers have been resilient. And the categories where people are spending their money have changed somewhat. Try going to a concert or to the airport, and you’ll see that people are going out and doing stuff. They have money. The good news is that it’s actually our money now as opposed to it being that government money. That government money is pretty much gone at this point. And people have discretionary income they’re spending.

Jeremy: Another thing I hear from people are questions like, “Why doesn’t it feel like inflation is coming down when I go to the grocery store?” Well, that’s the thing about inflation—it doesn’t hit everywhere. At the same time as you go through the cycle of inflation and then deflation, there are things that hold on more. The places where we still feel it right now are the biggest players, and that’s in food prices.

Josh: And housing. There are other areas, like fuel prices, that have come down substantially. Natural gas prices were much, much higher than they are now. Fuel prices act like a tax on us all individually and as companies. Everybody needs fossil fuels because most of the world is operating off of fossil fuels. That’s getting more diversified over time with alternative energy, but that’s a long-term story. And the labor market as well makes a big difference with inflation. When it’s tight, there are more pay increases, benefit increases, and things like that expected from employers. Companies don’t like to just absorb costs, so they will pass that increase on to consumers, which can cause inflation. That’s where all this is interrelated. We all pay for it, in other words.

Prices have come down, but slower than when they went up. It’s interesting to look at packaging and portion sizes, when they’ll keep the price the same but lower the quantity of what you get. So as a consumer you gotta be savvy.

Jeremy: Another question I keep getting is, “Why isn’t it falling faster?” We’ve said this time and time again: The fact is that 70% of our economy is people like you and me spending money. And right now, incomes are strong and people are still spending money.

Josh: And the rest of it is government business spending. But yeah, so much of this comes down to just people having money to spend. That’s why the unemployment rate is so important, and so is the employment rate. Those 10,000 people a day retiring is something that other parts of the world are contending with as well. We’ve got an aging workforce. It certainly makes a difference. In the United States at least, we’ve solved some of that problem with technology. We’re working on solutions for the future, whether that’s robotics or AI or quantum computing or something else, there are a lot of things coming together to fill that gap.

Jeremy: And something else to consider is that earnings pressure from Wall Street which drives corporate profits. There’s always that pressure to meet those earnings estimates, and when companies don’t meet those earnings estimates, it has a negative effect.

Josh: Yeah, that’s how they’re being held accountable by shareholders. We hope they take care of their employees and customers and be good stewards of all that, but yeah they can’t take their eyes off of that profit.

Jeremy: And then, one of our favorite guys to listen to, Mr. Warren Buffett, said, “The stock market is a device for transferring money from the impatient to the patient.”

Josh: Yeah. Other Fidelity studies they’ve done on 401K activity show that the average investor doesn’t do very well, and it’s because of the investors’ behavior and that tendency to buy when prices are high and sell when prices are low. You might be listening to this and saying, “Well, that doesn’t make sense. Why would you do that? You are supposed to buy low and sell high.” But most people don’t. That’s why their results are so poor. That’s why working with a good fiduciary financial planner that will help you stay disciplined and not get sucked into that cycle will result in higher returns.

Jeremy: As professionals, obviously we want to do right by our clients and we have that legal obligation to do what’s in their best interest. A lot of the time your best interest is not necessarily what your emotions are telling you to do in the moment.

Josh: And Warren Buffett, who is one of the most successful investors of the last 70 years or so, still says he’s never met anybody that has been able to time the market consistently. Can you get lucky once in a while? Absolutely. But to do it over decades? No.

Jeremy: Going back to rate cuts, what are we looking at?

Josh: I was just at the financial conference last week. I think there were eight billionaires speaking, including Ray Dalio, who still has the largest hedge fund in the world, Bridgewater Capital. Not that any of these people can guarantee anything, but overall their expectation is that there will be one to three quarter point rate cuts this year. Some people are hoping that the Fed will get really aggressive and cut more than that. And it’s possible if there’s a shock event, such as 911 or another pandemic or something like that. But if we are kind of plodding along based on the data out there, it will probably be one to three rate cuts this year. It’s possible that the one in March won’t happen. Motivation is definitely more on keeping prices steady and making sure that inflation doesn’t go crazy again, and overall the consumer has been pretty resilient even with these higher rates. Most people still have jobs. There haven’t been massive layoffs. So overall, things are still looking pretty good for a one to three rate cuts. I wouldn’t get real excited that this is a trend that’s going to be over years of rates falling, though.

Jeremy: That’s a really good point, because if we look at history and how the Fed typically works, they’re very quick to raise that rate, they’ll do it by leaps and bounds, but bringing it back down is like going down an escalator. It’s slow, very methodical.

Josh: Yeah. The only time we see it happen fast is during big shock events that happen from time to time. These things happen and they’re not predictable, so that’s why the Fed throws gas on the fire. They probably threw too much gas on the fire and that’s what created the inflation problem to begin with.

Jeremy: Question from a listener: With the Magnificent 7 making up about 30% of the S&P 500 market cap and sitting at PE ratios around 35, are we long or short on these companies looking into 2024.

Josh: We typically don’t short anything. In the market that’s a dangerous game. It’s a good perspective as far as why not to just put all your money in the S&P 500 and call it a day. There’s a lot of risk though, because you’re concentrated among a fairly small number of companies. A lot of them are trading at such high multiples right now and they need some strong growth. It’s possible that that will happen, but there’s a lot of downside risk that could happen too, if you’re overly exposed to just that one area.

Jeremy: When we talk about the magnificent 7, the large portion of what happened in the S&P 500 last year was driven by very few companies.

Josh: Big companies, and they had a lot of artificial intelligence.

Jeremy: Right. So we ask if they are fairly priced or do we see them taking a step back. So it was largely just a few companies, but we’ve seen that spread out, especially over the last couple months. When we’re talking about companies, those magnificent 7 are companies that pretty regularly do some great things as far as earnings. So I think what we can see right now is going to be probably more muted than 2023, with things spread out a lot more. Does that mean go ahead and sell those companies that did really great? Probably not, but stay diversified because that’s really what we can see at this point.

Josh: And there are opportunities where we rebalance. I think that’s part of being a good and prudent investor is rebalancing. And regarding some of those companies that have really taken off and seen huge gains, we take some of that and invest it back into the more diversified part of the portfolio. We always want to make sure we’re invested in lots of different asset classes and lots of individual companies.

Jeremy: Right and realistically, a lot of the advancement that’s going to happen we don’t even understand, nobody really does at this point as far as the risks or downsides of artificial intelligence. But certainly there will be good things that come from it as well. Like the Internet and smartphones, everything that we’re using right now and take for granted had some people worried. It turned out that there were positives and negatives, but by and large things that we just take for granted now have resulted in a lot of productivity.

Josh: Also, we have the real estate market, which should be positive with rate cuts. For those of you who own bonds, I feel more conservative. Your portfolio tends to have a seesaw effect: As rates come down, the value of existing bonds goes up. There could be some good tailwinds based on rate cuts, with lots of different types of investments over the next couple of years. So depending on how aggressive or conservative you are, there should be opportunities in any of those investment strategies.

In the United States, we haven’t had a high growth rate as far as babies being born for quite some time. Our growth has mainly come from immigration. So a lot of it does come down to technology. Fifteen years ago, we didn’t even have smartphones in our pockets. So now we just take it for granted. A few decades ago, the Internet didn’t really even exist to any large degree. ? Nobody knows the exact implications of technology going forward, but certainly it will continue to drive productivity.

So overall, the forecast for 2024 isn’t bad. Last year the forecast wasn’t exactly rosy, and we ended up having a great year, but this might be a more normal year. The Fed will probably not be raising rates. I think we can say that pretty confidently, but anywhere between one to three rate decreases hopefully, The economy should be slowing down. We haven’t really seen that happen yet, but it should be slowing down due to the higher rates we have now.

Overall the advice is: Have a good advisor. If that’s us, thank you. If it’s not us, you could come talk to us. But if you’ve got a great Certified Financial Planner, that’s awesome. Hopefully they’re delivering great results for you. If you want a second opinion, you’re welcome to have that conversation with us.

Jeremy: Yeah, and it’s always good to just have that advice, even if it’s just a sounding board, a professional that you can talk with about your concerns.

Josh: There will always be risks. Those risks don’t go away.

Have a good person that you can talk to. And we’re always here to be a sounding board for you. We’ve got a great team of qualified and experienced people.

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This episode has been prepared for informational purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors. Investment advisory services offered through Keystone Financial Services, an SEC registered investment advisor.