Let’s set some New Year’s resolutions for the American economy
By With the new year comes New Year’s resolutions, and rather than telling you all about mine (you’re welcome), I thought I would set some resolutions for the American economy in 2024.
Resolution #1: Lose some (inflationary) weight
November inflation reports were once again positive, with prices rising just 3.1% over the prior November, compared to 3.2% in October. It seems more and more certain that the threat of recession is behind us, and we can get back to target rates sooner rather than later.
I want to see that trend continue in 2024. Last December, when core inflation was over 5.5%, I wrote that I didn’t see this dragging out as long as a lot of the pundits anticipated, and just a year later, we’re back down to 4% and falling. That will not only reward your household budget with a little more wiggle room, but also many American businesses will benefit from the same lower costs that benefit you.
Resolution #2: Do some gardening
Just like a gardener prunes their flowers to encourage sustainable growth, we plan to pare back some of these high-growth equities in our portfolios to make way for the great American companies that may be yet to bloom during the recent upturn.
We spent 2022 heavily weighted in growth equities because we believed that, in an inflationary environment, Wall Street would reward stocks that could grow their profits quickly. That allocation has been rewarded as many accounts have outperformed the markets.
But now we’ve begun to rotate into value-based companies — everyday companies in our lives. I won’t go into specifics here, but as you drive to work tomorrow, look at the billboards all around you. These are the companies where you bank, get home improvement supplies, and buy your morning coffee. We’ve been adding to these companies whose stocks have not done much of anything during this severe inflation because we believe that in 2024, consumer price inflation will continue to steadily fall, as we’ve seen in these latest reports.
We’ve seen the supply chain fixed and energy costs come down, and in 2024 I believe some of those savings will finally be passed on to you as these companies become comfortable with more stable costs.
Resolution #3: Stay on top of the housework
The number-one conversation I have with clients right now is, when can I move? When is the Fed going to lower rates so I can finally buy a house at a reasonable mortgage rate? Currently, the market believes that the Fed will begin lowering rates as soon as March or April. On Wednesday, the Fed indicated it could make three total cuts in 2024, with more in store for 2025.
Mortgage rates tend to follow the federal rate pretty closely. But these cuts will likely be small and spread out, which would mean no significantly lower mortgage rates until the middle of 2025. I know that’s not what most of you house hunters want to hear, but it looks like there is a light at the end of the tunnel.
Now that said, housing is more than mortgage rates. By the end of 2023, we will have added 1.2 million new multi-family housing units over the past three years, which already has increased options for those looking to rent. Rent prices have been dropping since their peak in July, and that is good news for people who are saving up for a down payment as they wait for mortgage rates to follow. I think we’ll see the residential market reemerge when we see that happen, and you can fire your Zillow account back up.
Resolution #4: Pay less attention to politics
Come to think of it, this is a good resolution for all of us.
It won’t be long into 2024 before we start hearing (again) about the debt ceiling and watching Washington’s finest bicker and posture about a government shutdown. Who knows — this time they may actually do it. This is just the reality we live in with today’s polarized climate.
And then there are national elections to deal with, so no rest for the weary there. We will likely see volatility as the markets respond to the push and pull of the political environment. But I hope economists (and you) remember that it’s all just noise, and there’s rarely ever a reason to panic.
Here’s a crazy stat that I read today: Since 1952, the S&P 500 has gained an average of 7% during presidential election years. That number is even higher in re-election years. With all the fear-mongering about what a contentious election might do to the markets, more often than not, we have seen them chug right along. Corporate America doesn’t care about elections unless they impact their bottom lines.
So those are my resolutions for the economy in 2024. I believe that it will be a year when a lot of the recent have-nots become haves. I believe that our own pocketbooks will feel a little heavier as some of the inflationary pressures slowly ease. We never know the direction the stock market roller coaster will take us, but history shows it should be a positive year for the historical books.
I thank you for trusting us with this ride. Enjoy the holidays and let’s get ready for a happy and healthy 2024.
Article by David Smyth, CLTC, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.