KF Update – Wrapping up 2023 and looking ahead to 2024

 5 Minute Read

Good afternoon, we hope this email finds you well and you had a wonderful holiday season.  We wanted to send along our thoughts on the markets from 2023, and some planning items for 2024.  We hope you find this information helpful.

Markets & Economy
2023 saw a strong recovery in equity markets and we have so far avoided a recession.  Inflation is down to just over 3%, and the Federal Reserve has stated they no longer plan to raise interest rates, and in fact may cut them up to 3 times in 2024.  Here are the 2023 calendar year returns of several asset classes:

Dow Jones – Large US Value Companies – 13.7%
S&P 500 – Large US Companies – 26.29%
Nasdaq – Large US Growth Companies – 43.42%
Russell 2000 – Small/Mid US Companies – 16.93%
MSCI EAFE – Large International Companies – 18.24%
Barclays Bond Index – Aggregate US Bonds – 5.53%
Gold – 14.59%
Silver – (0.65%)
Bitcoin – 155.42%
*source Kwanti

In the 4th quarter of 2022, over 60% of economists surveyed by the Wall Street Journal expected a recession by the end of 2023.  Equity markets, and the US consumer once again showed us how difficult they are to predict as the economy actually grew by 3.1% last year.  Diversification, high quality investments, and a long-term perspective rewarded investors again in 2023.

Portfolio Management
Since I started Kane Financial in 2017, we only held short-duration bonds in client portfolios, bonds that had maturities of around 5 years and under.  The reason is that interest rates were near 0, and if interest rates rose, longer dated bonds could go down. 

That is exactly what happened when the Federal Reserve started increasing interest rates to fight inflation.  In 2022 the Barclays US Treasury 20+ Index went down by over 31%.  By contrast, the Barclays US Treasury 1-3 Year Index was down only 3.82% over that same time period.
*source Kwanti

Think about like this, how you would feel if back in 2021, you bought a 30 year treasury bond that paid 1% in interest, while today you could purchase that same bond and it would pay you upwards of 4.4% in interest? 

This is called interest rate risk, even though you are buying a top quality bond that is guaranteed by the US government, the maturity of the bond is extremely important within the context of a properly diversified portfolio. 

In August of 2023, with inflation cooling and our feeling the interest rate hikes were near the end, we added some longer dated bonds to client portfolios.  These bonds could benefit if we do in fact see rate cuts in 2024. 

Looking ahead to 2024
If there was ever a year to limit our television news intake, it may be 2024.  All signs point to another contentious presidential election, and one that could start sooner and last longer than any in recent history.  

As I detailed in my last email, the performance of equity markets are overwhelmingly tied to corporate profits, not the outcome of a presidential election.  There will be a lot of noise in 2024 surrounding this election, please continue to keep that focus of investing for the long-term.

Some other considerations for 2024:
 

• Required Minimum Distribution age is now 73, up from 72.
• IRA Contribution Limit has increased from $6,000 to $7,000 ($8,000 for those over age 50).
• 401k/403b contribution limit has increased from $22,500 to $23,000 ($30,500 for those over age 50).
• The deadline for filing taxes and IRA contributions is Monday, April 15th 2024.

If you have any questions, please do not hesitate to contact the office.  We hope you find this information helpful and you have a wonderful start to 2024!

Best,
Clint & Renee