What a difference a year makes. While we ended 2022 with stock and bond markets both down double digits, markets roared back in 2023 with strong performance virtually across the board. A sharp rebound in the fourth quarter powered both equity and fixed income benchmarks to solid year-to-date gains, bringing a welcome bounce back from last year’s slide.

As we move into 2024, the financial landscape stands at a crossroads, brimming with opportunities and challenges alike. We must remain cognizant of the fact that at current levels both stocks and bonds have priced in a lot of positives. There are some very aggressive assumptions and if some or all prove incorrect, they could lead to an increase in volatility for both asset classes.

Here are four key themes we’ll be keeping a close eye on as we transition into the new year.


1. Federal Reserve Policy

The Federal Reserve’s policy decisions wield a profound influence on market sentiment and investor confidence. While 2023 was dictated by multiple rate increases, an eventual pause, and a dovish turn towards the end of the year, investors now expect 2024 to be filled with rate cuts. They are currently pricing in six for the duration of the year, which is 3 more than Fed officials had forecasted themselves at the end of the year. Given Wednesday’s (1/31/2024) hawkish Fed release that included not only a maintaining the target federal funds rate, but also communication that gives room for more rate hikes still, investors will need to keep closely monitoring the Fed’s stance on interest rates, as they attempt to get to their inflation target, while achieving a soft landing or even a “no landing” event.


2. Geopolitical Uncertainty

In an increasingly interconnected world, geopolitical tensions have the power to send shockwaves through the financial markets. With the new conflict in the middle east between Israel and Hamas, large shipping companies have begun pulling out of the Red Sea and opted to take longer routes around the Horn of Africa, thus delaying delivery dates and increasing the cost of shipments. The prevailing thought from economists is that this only adds to inflationary pressures around the globe. Along with the ongoing conflict in Ukraine, questions form on how long these wars will last, as well as if the U.S. gets more directly involved.


3. State of the Economy

Economic indicators serve as barometers of the health of the global economy, providing valuable insights into growth prospects, consumer sentiment, and inflation dynamics. So far, projections show a deceleration in economic indicators such as GDP growth, unemployment rates, and consumer spending patterns for most, if not all, of 2024. Should larger cracks begin to show in some of these metrics, investors could be burdened by higher market volatility along with increased pain in their pockets.


4. Corporate Earnings and Profitability

Corporate earnings are an essential measurement of the stock market, reflecting the underlying profitability and resilience of businesses across industries. In 2024, it’ll be important to scrutinize not only the current quarter’s earnings reports for each company, but, perhaps more importantly, the guidance that they provide for upcoming quarters for clues about the health of corporate America. With some of the largest companies, Apple, Google, and AMD, already missing on revenue expectations and providing negative guidance this week, it will be interesting to see how earnings in the first quarter play out.


How We Can Help

Investors must continue to remain vigilant in assessing the impact of external factors and events on market volatility and risk sentiment, recognizing the importance of diversification and risk management in safeguarding their portfolios.

At GGM, aligning your investments with the prevailing economic environment is just one of the ways we strive to add value to your portfolio. If you are concerned about whether your investments are primed for the current market and allocated to meet your objectives, we recommend our complimentary portfolio checkup. Contact us today!