Fourth Quarter Newsletter 2023

      There is an old saying that the market climbs a wall of worry. Last year proved to be a tough climb; but in the last quarter, amid 3 straight meetings in which the Fed left rates unchanged, investment markets mounted a broad rally, with the S&P, which finished October in the red, up 26%, and the DJIA up 15.9 %, for 1-year period ending Dec. 29, according to Franklin Templeton’s What Happened Last Week report of 01/02/24[1]. The NASDAQ finished up 44.5%, with Information Technology the leading sector for the quarter, up 57.8%, and Communications Services up 55.8%. Energy, which was among the top sectors in 2022 and as the year began, was next to last at minus 1.3%, finishing ahead of Utilities, which came in at minus 7.1%[2]. While the prospect of the Fed truly hitting the stop button on raising rates and thinking about rate decreases sometime in 2024 helped the broad market, a handful of stocks demanded high attention from investors in 2023, driving valuations up. Many now expect the Fed has definitely called a halt to raising rates and may begin easing early in the year; but whether they are truly done and when they may begin to ease is still uncertain. The Fed itself is sounding a note of caution, reminding us that the target rate of 2% inflation is still driving their decisions. They will want to be sure inflation has been beaten before easing rates.

      Michael Lebowitz wrote in his Jan. 3,2024, article “What Will Replace the Magnificent Seven in 2024,” that it is difficult to predict who the leaders will be by looking at Fundamentals. The stars of 2023 were Amazon, Meta, Tesla, Nvidia, Apple, Microsoft, and Google. Might the laggards of 2023 take over leadership this year? Energy and Utilities are among the sectors some are looking at for above average returns in 2034, citing good Fundamentals for the sectors. But Lebowitz cautions that the perception of investors about a stock’s value is a force to be reckoned with. Desire by investors to buy and sell, if strong enough, “can divorce a stock’s price from its fundamentals”[3].

     Several investment pieces appearing in the New Year discuss the American investors’ perceptions about the economy and the market outlook for 2024. Thinkadvisor.com published results of a recent survey on 01/05. Michael Fischer reported that a majority of Americans responding to an Allianz Life survey are worried about the economy, with only 47% expecting it to improve in 2024. Allianz noted that Optimism has trended downward in recent years, from 66% in the 4^th quarter of 2020 to 54% in 2021, to 48% in 2022. Reportedly 74% of respondents think the market will be “very volatile” and 77% believe interest rates will continue to rise[4]. Economist John Mauldin in “Looking Back and Forward’ on 01/01/24, noted that the mood of many going into the New Year brings to mind the opening lines from Charles Dickens, Tale of Two Cities, ‘it was the best of times, it was the worst of times,’ where things are so great on one hand, and yet we feel so awful on the other”[5].  Lingering uncertainty about what the Fed will do with interest rates and when, political angst in an election year already fraught with controversy, and the massive amount of conflicting information available today, can make it difficult for investors to be optimistic about 2024. Mauldin discusses historical market performance and whether Bear or Bullish outlooks in the New Year proved out most often. He concludes that  markets have gone up significantly more often than they have gone down. He is optimistic to a point about 2024; and believes that the best approach is cautious optimism… “Optimism with risk controls.[6]”

      Many analysts are expecting 2024 to be the year of the Bond. Alliance Bernstein wrote in Fixed Income Outlook 2024: Bonds Roar Back, 01/03/34, that after a transitional year for the global economy, that the potential for rates trending lower this year is high. They feel key central bank rates and bond yields will remain high well into the year before decreasing. They note that some corporate fundamentals are being affected by consumers spending less and their leverage is creeping higher. But corporate fundamentals “started from a position of historic strength.” So, they do not expect a major surge in credit downgrades and defaults. And lower rates later in 2024 would bring the opportunity for refinancing debt[7]. 

      Falling rates will increase bond prices, more so in long duration bonds. They advise paying attention to credit ratings, and to look for opportunities to add longer term bonds when volatility provides them. Here is the 1-year return and yield as of @2/29/23 for bonds:[8]

 10 Year Treasury       + 3.2% yield 3.86

U. Corporates.            + 5.3% yield 4.53

Global Bonds              + 5.7% yield 3.51

  Munis                           + 6.4% yield 3.22

Housekeeping notes for the new year:

  End of year tax summaries and other tax reporting documents will be coming out soon. Remember that you might have had some residual assets in a Cantella account after Dec. 31, 2022, and may receive a 2023 tax document for it. Give us a call if you have any questions about the end of year statements and 2023 tax documents you receive.

  In the new year, you will see a minor change in your Cambridge statements, listing The Galarneau Group as your Financial Advisor. Previously, the name, or names, you saw on the statement reflected the “rep number” associated with the account, and could have been Debbie’s, Preston’s, or our joint number. In the interest of clarifying that we as a team are your advisors, Cambridge will be making the change to all statements to read “Galarneau Group.”

  We are looking forward to 2024, and to continuing to earn your trust and your business. As the year unfolds, we will be ready to practice cautious optimism while managing risk and being ready for the unexpected.

      Warmly;

Debbie, Preston, and Katie

Disclosure:

These are the opinions of The Galarneau Group and not necessarily those of Cambridge Investment Research, and are for informational purposes only, and should not be construed or acted upon as individualized investment advice.