2023 Q4 Market Commentary: Predictions

Last January, in our 2022 market commentary, we talked about how the world will never stop surprising us. Yet, despite the surprising nature of the world, our desire to try to predict the future never stops. Every conversation we have about the markets includes a question about what we think will happen next. Usually, that question begins with “I know you can’t predict these things,” but we still can’t stop ourselves from asking for a prediction anyway!

This doesn’t just happen in the markets. In sports, people spend hours trying to predict who will win the next big game or the next championship. Every election year, there is endless commentary and polls trying to predict who will be elected. We check the weather daily to see if the prediction calls for rain. Our brains are constantly trying to make sense of the world around us, and we think that knowing the future will make things better today. 

Unfortunately, we repeatedly prove to ourselves that we are generally terrible at predictions. The year 2023 in the markets should prove to be a shining example! As always, at the beginning of the year, Wall Street strategists put out their forecasts for the market. According to Bloomberg, for the first time in decades, they predicted a down year for stocks, as you can see in the chart from Bloomberg:

What happened to stocks in 2023? I’ll give you one guess! 

If you listened to our lessons on surprises, the table above shouldn’t surprise you too much. In a year where nearly every “expert” predicted a continued decline in the market, almost every area of the stock market posted double-digit positive returns. US Large Cap Growth stocks led the way after suffering the worst losses in 2022, bouncing back with a 47% return. Value stocks lagged badly behind growth stocks but were still up 12% on the year. Even international stocks had a very strong year, with developed market stocks up 18% and emerging market stocks up 12%. 

After two years of losses in the bond market, we finally saw some relief there as well, with core bonds up 5% and high-yield bonds up over 13%. Most of these gains came in the fourth quarter as the Federal Reserve finally started to show hints of potential future rate cuts instead of maintaining a pause in rate increases. 

It should come as no surprise that forecasters were also wrong about the economy. According to 38 economists polled by Bloomberg last December, the odds of a recession in 2023 were placed at 70%. Coming into 2023, it felt inevitable that the U.S. would enter a recession and interest rates and stock prices would fall. Instead, we saw the economy continue to grow, interest rates tick higher, and the stock market rally.

You might think the poor performance of forecasters in 2023 would lead to fewer forecasts in 2024, but unfortunately, that’s not the case. Search “2024 market outlook” on Google, and you’ll find forecasts from every financial institution. Why? Because everyone wants to try to predict what will happen next, even if they know it’s impossible.

By now you can probably guess that we won’t be making any market predictions or providing any forecasts for what the market might do in 2024. We never have, and we never will. Instead, we suggest you focus on the things you can control and ask yourself questions like this:

1. Does your asset allocation target still make sense for you given your risk tolerance and return requirements? If something has changed in your life, it might be a good time to reassess your asset allocation to make sure it still aligns with your goals.
2. Is your portfolio still in line with your target asset allocation? You might be overweight in that asset class after a very strong year in the stock market, particularly in growth stocks. If so, you should consider rebalancing back to your targets.
3. If you are still working, are you saving at least 20% of your income? Are you taking advantage of all retirement savings options, including an HSA? Would you be able to increase your savings rate from last year?
4. If you are in retirement, how much did you spend last year? How did that compare to the year before, and have those increases generally been in line with inflation in recent years? Are there any areas where you could cut back your spending, if needed?
5. What are your overall investment expenses? Could they be reduced by moving to lower-cost options? 
6. Are you minimizing your overall tax liability? Are you putting less tax-efficient investments in tax-deferred accounts where it makes sense to do so? Have you thought about bunching deductions to maximize the tax benefit of things like charitable deductions?

We feel you can make a real difference in your finances in these areas. You could spend hours reading every market forecast and try to position your portfolio to take advantage of what will happen in 2024. Unfortunately, the odds are stacked against you being successful with that approach. If you want to talk about any of the above questions with us, please reach out and schedule a meeting. 

-Chris Benson, CPA, PFS

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.