As we approach the end of 2023, it's a fitting time to reflect on a few financial trends that have shaped the year. Our latest conversation provides insights into three core areas: interest rates, inflation, and stock market performance.

Stock Market: New Highs & Narrow Breadth

Our discussion covered the stock market's performance, with a focus on the S&P 500. Notably, the top 7 companies in the index drove the lion’s share of results. Breadth widened some at the end of 2023.

With stock markets near all-time highs, some may be wondering, “Is now the time to go to cash?” We don’t think so. One, three, and five years after a new high in price, stock market returns have historically generated around 10 to 12 percent a year. Interestingly, 10 percent is the long-term average market return.

Interest Rates: A New Landscape

This year witnessed a significant shift in interest rates. The Fed funds rate, which began near zero in 2022, now hovers around 5.5%. This change impacts not only the broader economy but also specific sectors such as housing. Mortgage rates, particularly for new 30-year loans, have adjusted in response.

Inflation: Compounded

Inflation remained a hot topic driven by the evolving cost of goods and services. Over the last 20 years, inflation is up around 66%. On the other hand, household assets broadly (stocks, bonds, and real estate, among others) are up as well. 196 percent for those counting at home.

Wishing you a prosperous and successful new year!

V23352081