2023: The “Old Normal” Ends, as expected

Equity markets are closing out 2023 on a strong note, nearing all-time highs, as our investment team had forecasted early in 2023. The excuse for the last 2 months’ rally is a sharp decline in Treasury yields leading to the prospect of 2024 rate cuts by the Federal Reserve. Fears of a 2023 recession have given way to an almost universal call for a soft landing. A Goldilocks economy. Not too hot and not to cold, just right. While new all-time highs are not wishful thinking for the first half of 2024, our team does expect higher volatility out of the gate in 2024.

The S&P 500 is up 24% heading into the end of the year. This is on pace for one of the strongest annual returns of the past twenty years. Of course, few want to mention that places the index flat for the last two years. The top groups in 2023 of technology, telecom services and consumer discretionary powered most of the equity market returns. The Nasdaq swung from a -33% loss in 2022 to a near 50% rebound so far this year. 2023 would rank the highest return for the Nasdaq since? 1999. Very few investors believed in that path for 2023.
The 10-year Treasury yield moved from a headwind on equity performance to one of its biggest tailwinds. The 10-year yield was up more than +110 bps at one point in 2023, to the +5% level. Post October, yields turned sharply lower toward 4% currently. This drop eased financial conditions much to the desopair of the October 1987 crash replay coming crowd.

OHFG message back in 4q22 not to give up hope and faith in the 60/40 portfolio. The balanced 60/40 portfolio of stocks and bonds was absolutely destroyed in 2022, down -17.4%. This portfolio is now on pace for a near +17% rebound from those levels in 2023 with bonds and stocks both benefitting from cooler inflation and the presumed end of the tightening cycle.

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