Excerpt Quarterly Letter – January 2024

2023 turned out to be a relief for investors after a very difficult 2022 in both the stock and bond markets.

To put the last two years in perspective, it is important to remember that approximately 22 million jobs were lost during the worst times of Covid.  Though it took a while, the economy finally moved beyond the huge disruptions caused by the pandemic, with strong growth and falling inflation taking hold to recoup what had been lost.  The COVID-19 pandemic has distorted much of the economic data and made indicators less reliable in the past three years. 

For the stock market, 2023 was a year with some very big winners and will probably go down in history as one of high speculation.  The “Magnificent 7” stocks, all mega cap tech stocks, were the propellers for stock market performance which returned 24% in 2023.  If you exclude these 7 stocks, the S&P 500 Index return was 11%.   

The bond market also stopped bleeding as the Fed stopped increasing interest rates. Currently, interest rates have stabilized around 4-5%.  Most economist think that rates have increased sufficiently to continue to bring inflation down further.

Looking Ahead

Now that the pandemic shock is receding, we begin to see what has been predicted for some time – a worker shortage.  Our population is aging and moving into retirement. This will limit how much the country can produce and grow.

Enter Artificial Intelligence (AI) and what it may be able to offer.  In reality, AI has been in the making for some time as computer hardware has advanced.  Initial emphasis has been on productivity gains, however, as the machines get smarter and “deep” learning progresses, momentum is expected to grow much like building blocks are added to a puzzle.

In our increasingly competitive world, we think there are real investment opportunities in the tech, energy, infrastructure and cyber-security areas.

While increasing interest rates are probably over for now, we anticipate that the era of zero interest rates is also not in the near-term future for now.  We will be able to earn at least a modest amount of income from bonds.

In evaluating the outlook for 2024, our basic advice is to stay invested in index stock funds for diversification and certain individual stocks for focus and strategic opportunities. We will balance the portfolios with bonds that have near term maturities for income.

Linda A. Mundy