December 2023 Market Update

When The Tide Goes Out

As you stand on the shore watching the ocean for a few minutes, it can be difficult to determine if the tide is coming in or going out.  Over a bit more time, things become more apparent, and you can look at frames of reference to determine what is happening quicker than just letting it happen.

The economy and the markets can be similar, albeit much more complex.  The past 24 months we have seen that economic good news has been bad news for investors while bad news on the economic front has been good news for investors.   This has been nearly entirely because of the anticipation regarding what the Federal Open Market Committee (FOMC) was likely to do regarding rate increases.    Now as we see economic conditions worsen the speculation has turned to when the FOM will decrease rates.  The market, as described as the collective emotions of all worldwide investors and consumers, has started to decide that economic conditions are worsening enough that the FOMC will likely reduce rates and the new question is when and by how much.

The next debate is whether we will have a “soft landing, hard landing, or no landing” in terms of the overall economy.  But does that matter for investors? 

Does the economic outlook matter for investors?

As with many good questions, the answer is yes and no.  For the longer-term investor deciding where to allocate investments, the economic conditions matter a lot.  Economic conditions matter less for the day-to-day market movements, the day traders and investors looking to make changes every month or even every quarter.

This is because broad economic conditions impact what companies and sectors will likely do well over the long term.  Over the shorter term, the overall market is driven much more by market sentiment and the collective emotions of everyone making decisions.  Sometimes, those decisions are how much or what to buy for Christmas, and sometimes, they are what individual companies stock to buy.  These shorter-term movements are much more complex to forecast

Recession Risk:

We continue to see a significant risk of a recession during 2024.  We doubt that it will be a drastic one for several reasons.  First and foremost, while we know the consumer is weakening from a powerful position based on the data we see, that does not yet make the consumer actually weak, just weaker.  Second, we see the role of artificial intelligence, or AI, in increasing overall productivity as it continues its speedy adoption and adaptation.  Our forecast does give us pause, however, rushing into high-yield corporate credit or the equity of companies having high debt levels.

The downturn or recession we see on the horizon could be contained in the real estate market, particularly the commercial real estate market.  When this happens, it creates opportunity for some and catastrophe for others.  Selection in commercial real estate will likely make all the difference.  Further, while we are seeing home prices come down slightly, we do not expect a major correction in the housing markets for 2024.

Positioning Yourself to Profit: 

We would avoid high-yield corporate debt or lower investment-grade fixed income to prepare for a possible recession.  We are still cautious regarding longer-term fixed income; however, in our opinion, there is potential to profit during 2024.  The mathematics of the fixed-income markets still do not support the old idea of the 60/40 (40% bonds, 60% stocks) portfolio, but at least at current levels, there is an opportunity for a positive return on the fixed-income side.   Remember, there are many other ways to generate income utilizing securities other than traditional fixed income.

We also see the potential for select smaller companies to play some “catch up” to the Magnificent seven companies that ruled the markets this past year.  We have already started to see that this past month.  While we believe those large-cap names will continue to perform well, the innovation story remains intact, and we continue to see long-term parallels to the Roaring 1920s in terms of innovation driving the economy forward.

We continue to see opportunities in alternative and nuclear energy and select Utility companies that have underperformed this past year.  We also see numerous opportunities in the manufacturing space, particularly as AI and 3d printing combine forces to create manufacturing abilities that we have not yet been able to fully conceive.

As we head into 2024, markets typically move higher during election years, with the notable exceptions of 1976, 2000, and 2008.  As the political war rages, volatility in either direction can, however, be extreme.

Conclusion:

We remain optimistic about the markets over the next 12 to 18 months and believe there will be numerous opportunities for prudent investors willing to adapt to changing market conditions.  A well-balanced and diversified portfolio across asset classes and sectors combined with prudent use of alternative investments mixed in a way that meshes well with your personal risk tolerances provide the potential for a profitable upcoming year in our opinion.

This note is not meant to be taken as personal investment guidance.  Each situation is different, and an in-depth conversation with a qualified professional is my best advice before adjusting your plan.  My encouragement is to stick to your long-term (five years or more into the future) strategy and remember your goals unless you have a significant life change that causes you to need to adjust that strategy.

If you would like to learn more about how to create your paycheck protection program in retirement so you are not worrying about running out of money or not being able to live your best life, reach out to us at the Contact Us section of Guardianrockwealth.com or by texting the word LIFE to 321-421-5213

Define your outcome and allow a skillful artisan to help you create it.

Please remember that this note is our opinion from a broad perspective based on over three decades of money management experience and is not personal investment advice.

For more information and a copy of the Amazon Best Selling Book Build A Life Not a Portfolio, reach out to us HERE or text the word LIFE to 321-421-5213

Contact us to book John to speak at your next event.

“John makes investing, economics, and financial planning fun and enjoyable with his real-life stories while providing valuable tangible information listeners can use immediately to make positive changes in their lives.”

Additionally, you can tune into our weekly Building Your Life Podcastand search for topics of interest and our daily five-minute audio update.

Talk soon,

John

Phone: (561-) 327-4646

Email: jbrowning@advocacyinvesting.com

John Browning, MBA, and CSA®

* Securities and investment advisory services are offered through Guardian Rock Wealth Investment Mgmt. Inc.™™ (GRWIM). GRWIM is a wholly owned subsidiary of Guardian Rock™ LLC. Neither of these entities provides tax or legal advice. Guardian Rock™ has offices in Palm Springs (West Palm Beach), & Port St. Lucie Florida, Pinehurst, North Carolina, and Lisle, IL, and services individuals across the United States.

Nothing in this communication should be construed as personal investment guidance, and past performance does not guarantee future results. Investing is only appropriate for some. There is a risk of loss associated with investing in the markets. No representation or implication is made that using any methodology or system will generate profits or ensure freedom from losses. Please remember that investing carries risk. Guardian Rock Wealth™ LLC and its affiliates are fiduciary investment advisors. Please consult an experienced, qualified investment advisor before making any investment decisions and/or trying to implement any strategies and tactics we may discuss in any of our publications.