What will the new year bring?
It’s a good question. Perhaps my favorite answer is from the late Louis Rukeyser, the host of Wall Street Week, a popular financial news program many years ago. To paraphrase Mr. Rukeyser, “May the new year bring us exactly what we deserve, plus twenty percent.”
We got more than that last year. The U.S. stock market had a strong rally in 2023, notching a 26% return for investors. As we look to 2024, is it too much to ask for more of the same? By the numbers, it’s certainly possible.
Interest rates have stabilized at levels that are both reasonable and still good from a historical perspective. And while borrowers can’t get mortgages for free the way they nearly did a couple of years ago, the interest payments on a mortgage still aren’t likely to break the bank for most American homeowners.
Economic growth is also reasonable. The Christmas shopping metrics are not in just yet, but signs point to the fact that Americans spent money the way they typically do. And American businesses were happy to oblige, ramping production of everything to ensure the shortages that plagued prior holidays didn’t affect this one.
How about the job market? Virtually anybody who wants a job can get one. This may not be true for the recent college graduate, shedding tears because they can’t find an employer willing to pay a six-figure salary to someone with zero experience. But for those seeking employment, there is work to be had.
And what about inflation? Many goods cost 50% more than what they did just two years ago. We all feel that pinch every time we go out to dinner or shop for groceries. But signs point to the fact that inflationary pressures have diminished lately, and prices seem to be a bit more stable.
Reasonable economic growth. Jobs aplenty. Inflation under control. The ability to borrow at reasonable rates. These factors provide all the fuel we need to keep the good times rolling. So why is it, according to a recent Pew Research Center study, that the average American is not so optimistic about 2024 and beyond? Two words … Presidential election.
Election cycles make investors jittery. The uncertainty of not knowing who will be in the White House in the following year often causes investors to trade their stocks like they do players on their fantasy football teams and treat the markets like an offshore sports book. But even beyond the naturally elevated anxiety felt by Americans during an election year, there are other political factors that are exacerbating the problem.
The appearance of impropriety at many levels of government and law enforcement has caused Americans to question whether the U.S. is any less corrupt than many Third World countries. In 2021, three Federal Reserve branch bank presidents resigned over allegations they may have profited personally by the actions they were taking to stabilize markets during the Covid crisis. Hundreds of congressmen and dozens of senators have reportedly enriched themselves, or their campaigns, by accepting Big Checks from Big Pharma, Big Tech, and Big Bank. Even the justice system resembles a circus side show when we see how easily it is manipulated by politicians who are intent on furthering their own careers or destroying the careers of others. In all this, we scratch our heads, wondering how these behaviors are possible in the United States—mankind’s crowning achievement of civilization.
Put simply, Americans’ unease about what the future holds is a simple reflection of how we view the character of those in charge. We want to believe that our elected and appointed officials are not just following the rule of law—certainly not a given today—but are also adhering to a moral law, and hopefully one even higher than we hold ourselves to. As parents, when our children make mistakes, we waggle our finger and say, “you should have known better.” It may be frustrating, but it’s also part of the job and we expect it. But it’s especially disheartening when we have to say the same thing about someone we expected to represent the best in us, who, by our choice and our vote, is responsible for the welfare of others.
The good news is character flaws in our leaders do not necessarily jeopardize the American Dream for all of us. They contribute to uncertainty, however. Still, I am an optimist by nature. I want Lewis Rukeyser’s new year toast to be prescient today. I want 2024 to bring us another 20%, deservedly or not. But we also must respect that with investing, while things often work out better than we expect, few things work out exactly the way we think they will, and this year may be bumpier than the last.
~ Travis Raish, CFA