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Monthly Market and Economic Update

February 7, 2024

People reading the Monthly Market and Economic Update


  • In January, the S&P 500 Index was up 1.68%, while the Bloomberg Barclays US Aggregate Bond Index was down 0.27% and the Bloomberg Barclays Municipal Bond Index was down 0.51%. 
  • The stock and bond markets started the year digesting better than expected economic news and what it may mean for the pace of interest rate changes by the Federal Reserve.
  • The Federal Reserve continues to be consistent in their messaging that they will hold rates higher for longer until the signs that inflation is well under control become more evident.


  • The initial report for GDP growth in the fourth quarter of 2023 came in at 3.3%, well ahead of the 2% growth rate expected by economic forecasters. The most recent jobs report also showed the pace of new job creation (353,000) also well ahead of expectations (180,000). Coming into 2024, the bond market was expecting the first rate cut following the FOMC meeting in March. The 10-year Treasury yield had fallen from almost 5% in October down to nearly 3.75% by the end of 2023. This decline in interest rates provided a positive total return for bonds in 2023. With the recent strength in the economic indicators, the 10-year Treasury yield backed up to around 4.2% and is now hovering around 4%. However, with the Fed’s preferred inflation marker, the Personal Consumption Expenditures (PCE) excluding Food and Energy hitting 2% in the most recent report, the Fed is anticipating at least three rate reductions during 2024 with a target rate by the end of the year of 4.6%. The Fed Funds Futures market is now expecting the first reduction in May but also expects the Fed to be more aggressive in lowering rates. The Futures market looks for five cuts and potentially a total interest rate reduction of 1.5% to below 4% by the end of the year. The most likely outcome is the Fed Funds rate to land somewhere between 4% to 4.5% by the time the calendar turns to a new year.
  • For bond investors, the combination of higher current interest rates and potentially rising values due to the possibility of falling yields may result in a rather ordinary but positive year for bonds. Given the volatility in bond values over the past few years, ordinary is likely welcome. The probability of a soft landing for the economy is increasing. 2024 started with strong results for the key indicators for economic growth – jobs growth, consumer spending, and industrial production. Despite numerous recession forecasts in 2022, 2023, and now going into 2024, the actual economy continues to grow. 


  • The primary US market indices have each touched all-time highs recently. However, the broader market is still struggling to keep pace with the largest and most popular names. This has only served to drive valuation on the most popular stocks to heights reminiscent of the bubble in the year 2000 and the post-Covid 19 rally in 2021. Markets have corrections during each year, usually in the order of a decline up to 10% from highs. While the economy continues to support growth in corporate earnings, a narrow rise based on a few key names may cause the market to falter. A broadening of the market’s strength across different segments of the market would be a healthier outcome.
  • Election years always provide enough uncertainty to heighten the market’s anxiety. Historically, regardless of the election outcome, the market is most volatile during the primary elections as the swings in voter sentiment cause uncertainty regarding which candidates will prevail for each party. However, the uncertainty this year has less to do with the selection of candidates and more to do with potential surprises outside of the actual primaries. It should be noted that the stock market is significantly more focused on economic and earnings growth, and the direction of inflation and interest rates rather than on the election cycle.
  • The US economy has transitioned from the rapid recovery phase to a slower growth phase between 2020 and 2023. With the Federal Reserve prescribing strong medicine in the form of higher interest rates, certain market sectors and the overall economy have endured some short-term side effects. Now that the Federal Reserve is projecting a pivot to lower interest rates in 2024, the markets are behaving as if we are in an economic recovery, which may mean leadership will broaden out toward stocks that have been overlooked and undervalued. Those opportunities can be found in both US and international stocks. 


  • The allocation for each investor should be diversified between growth and safety based on their own tolerance for risk in the short run and their desire for growth in their investments in the long run. Determining the appropriate asset allocation and risk-reward trade-off is the most important decision for investors.  Once determined, staying invested during periods of uncertainty and rebalancing back to the selected risk profile can help investors achieve their long-term goals.