Reversion to the Mean
Last year was a strong one for the U.S. stock market, with all three major indexes logging double digit percentage gains. The Nasdaq Composite was the strongest performer out of the bunch.
What might this mean for 2024? We certainly don’t have a crystal ball, but if you ask investors their hopes center around one thing: a return to normal.
The year ended with a bang for stocks, and the Dow Jones Industrial Average set seven record highs in December alone. It may stand to reason that this win streak might eventually end in the new year. Instead investors wish for more moderate, and sustainable stock gains.
Between the high interest rate environment, and anxiety over whether consumer would be able to keep spending given persistently high prices, market watchers may welcome a more moderated macro environment.
Follow the Fed
That said, a moderate 2024 is far from a sure bet. Again, there’s no crystal ball at this desk…
What we do know is that the Federal Reserve is expected to cut interest rates this year, which could have a knock-on effect on stocks and bonds, but also give consumers some relief when it comes to interest rates.
On the bright side, the Fed’s favorite measure of inflation, the core PCE price index, has been moving closer to the central bank’s 2% target. In fact, on a three- or six-month annualized basis, it hovers right around 2%.
It’s a new year and much can happen. But there’s one thing that will remain the same: We’ll watch the Fed closely.
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