Capital Markets Review: 4th Quarter 2023
While talk of a looming recession was the focus for much of the year, the fourth quarter made economists optimistic about the possibilities awaiting us in 2024, including multiple potential rate cuts, a rebound in stock market performance, and easing inflation. Every quarter, our Asset Management & Trust team delivers a Capital Markets Review to help keep you apprised of the latest economic news and trends. You can find key highlights from our Q4 2023 report, as well as the full report below.
- ECONOMY: During Q4 2023, the U.S. Economy continued to be centered on the Fed’s actions and the expectations for their actions into 2024. Over the past 18 months, the Fed hiked rates by a cumulative 5.25%, and in Q4, they signaled the possible end of a hiking cycle with the potential of up to three rate cuts in 2024.
- EQUITY MARKETS: As of December 31, 2023, large-cap stocks, as measured by the S&P 500, returned 26.29% year-to-date. This strong annual return was due to several contributing factors, including inflation falling faster than expected, a healing supply chain and the excitement over the potential productivity gains from the implementation of artificial intelligence. Looking forward, earnings are projected to grow 11.8% in 2024 (per FactSet). Earning growth typically is a major component in predicting the market's return, so we will be watching that closely.
- FIXED INCOME: The Bloomberg U.S. Aggregate Bond Index is one of the broadest measures of the U.S. bond market, and it produced a whopping 4% total return in the month of November, its best return since 1985. On multiple fronts, inflation data appears to be in retreat, most notably in energy prices, copper and grains. According to the CME FedWatch Tool, there is now a 60% probability that the Fed will begin easing at the end of their March meeting and the probability jumps to 87% in June.
- ASSET ALLOCATION: With respect to asset allocation, our stance is similar to last quarter. Our portfolios are broadly diversified with exposure to both domestic and international equities; both growth and value issues; and both large and smaller companies. Regarding fixed income, we prefer government and agency notes with less than seven-years to maturity, while select intermediate term municipals in the 5 to 15-year range continue to offer attractive taxable-equivalent yields. Corporate debt is not necessarily compelling at current rates, but any widening in yield spreads may present more attractive entry points.
This review is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the review. The review is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.