‘Tis the season for prognostications about what the new year will bring. The smartest people in the financial world are evaluating the events of 2023 and extrapolating their views on how 2024 will unfold.
While I am not qualified to enter the ranks of the smartest, I thought it would be at least mildly entertaining to share some prognostications for 2024 which I think may come true. It is acceptable for you to politely disagree.
Prognostication number 1: People will inject politics into their portfolios
While it may seem like 2023 was an election year, the next national election is still just under 11 months away. In my experience, election years are full of investment traps due to the political hyperbole that infects the airwaves and social media.
Some people will be convinced that if the current President is re-elected our country is doomed. An equal number of people will be convinced that if the former President is re-elected our country is doomed.
People infected with this political pandemic will confidently adjust their portfolios based on their political fears or joys next year. While well-intentioned and prudent by echo chamber standards, some innocents will mistakenly sacrifice their long-term financial plan to manipulative politicians.
Politics and portfolios should not mix, but I predict they will.
Prognostication number 2: The Federal Reserve will surprise traders
Traders’ track record on predicting when the Federal Reserve will reduce its overnight target interest rate has been abysmal over the last 18 months. They thought rate cuts would start in June 2023, then fall 2023, then late 2023, and now everyone agrees the Federal Reserve will definitely start reducing interest rates at their May 2024 meeting.
There are simply too many variables in the U.S. and global economies to accurately predict the timing of future interest rate decisions.
One of those variables is traders themselves. Their anticipation of lower interest rates has reduced long-term interest rates since October. Because higher long-term interest rates serve as an economic brake to reduce inflation, traders’ recent actions could potentially delay Federal Reserve rate cuts.
I predict that the Federal Reserve’s first interest rate cut will not occur when traders currently expect it.
Prognostication number 3: What is hot will be not
Mean reversion is one of the most powerful forces in the financial markets. Sometimes it is wickedly quick. Sometimes it occurs in s-l-o-w motion.
Stock market gains this year have been driven by a small number of large technology companies. That kind of concentrated outperformance can continue longer than logic should permit. That is the nature of unpredictable markets that attain herd mentality.
While the timing is unpredictable, at some point traders will be distracted by a different narrative that is more interesting. The most likely moment for this is when it becomes “inevitable” that these large technology companies will lead the market perpetually.
I predict that the 2023 stock price juggernaut for large technology companies will not repeat indefinitely.
These are my humble prognostications. Thankfully, your financial plan does not rely on anyone (particularly me) accurately predicting the future. Instead, your success relies on patiently making thoughtful decisions over long periods of time while avoiding the hundreds of temptations and excuses that inevitably try to derail you.
We exist to help you and the people you care about through personal challenges toward long-term goals.
Quote of the week: Jack Bogle: “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.”
Photo credit: Dilok Klaisataporn, licensed through iStock #1580373175