“US companies will probably set an all-time record high in earnings in 2024, and we might break that record next year.”
How did 2023 treat your investment portfolio?
Despite predictions and fears of a mild recession in 2023, the S&P 500 ended the year up over 24%. When looking at what moved the market forward, there were three main drivers:
- Record earnings
- Expected rate cuts
- The “magnificent 7” stocks (Microsoft, Amazon.com, Nvidia, Meta, Apple, Alphabet, and Tesla)
Last year’s gains have resulted in current prices being uncomfortably high with P/E ratios of S&P 500 companies over 23. So what’s going to happen in 2024? On Thursday, February 8, Ryan O’Connell hosted the Q1 BTWM Virtual Lunch Webinar to discuss the current state of the market and what we can expect in the coming months.
To know what we can expect in 2024, we have to look back at what brought us here.
The Fed started hiking rates, beginning in early 2022, in an effort to keep a lid on rising costs after the economy re-opened post-pandemic. When rates go up, so does the cost of borrowing for individuals and businesses, which has a massive impact on the economy since actions like buying a home and expanding a business are more difficult. But when rates decrease, there is an immediate positive effect on the economy.
After the Fed announced that rate cuts were likely on the horizon, the market reacted and hasn’t really slowed down since. Looking at potential rate cuts in 2024, I would err on the side of minor cuts and take a defensive stance. A small rate cut is possible as early as June, another could come in September, and then a final cut for the year could also come in December, each of around 25 basis points. Many analysts feel that bigger cuts are on the way, but there would likely need to be larger warning signs, including an increase in unemployment, to warrant massive rate cuts.
“I do not see another year return-wise like 2023, but I do still think there’s a lot to be positive about.”
The economy is healthy, which leaves little motivation for the Fed to make massive changes, and a mild recession in 2024 is still possible. However, there are more reasons to approach 2024 with hope rather than doom and gloom.
Reasons to be positive include:
- Optimistic projections for 2025
- Record earnings growth
- Forecasts predict a modest S&P increase in 2024 (5-7%)
- Fixed-income assets offer opportunities
Starting Retirement Planning Late
The webinar finished with questions submitted via chat and email. The question submitted asked about how to approach planning for retirement late. Ryan outlined several steps to consider taking:
- Track what you spend each month and categorize “have to” expenses and “want to” expenses.
- Project what your monthly benefits will be from the following sources:
- Pension(s)
- Recurring revenue streams (Farmland proceeds, rental income, etc.)
- Social Security
- Set your target based on your “have to” expenses, and determine what you will still need monthly after factoring in your current monthly benefits.
“If you work somewhere where they have a 401k, enroll. If there’s a match, get the full match.”
Ryan also encourages working professionals to increase their monthly 401k contribution by 1% each time they get a raise. Do you know someone who needs help getting started with their retirement plan? Schedule a complimentary call with Ryan O’Connell to get started here.
Webinar Quotes
- “It still makes sense to own great companies.”
- “The Fed is showing they are committed to helping normalize the economy coming out of the mess that was COVID.”
- “If things slow down a little bit more than what the market has already priced into it, it’s hard not to imagine there could be price erosion.”
- “It’s not going to be smooth sailing; it’s going to be choppy, especially in an election year.”
- “If the forecasts hold true…what you could reasonably expect from the S&P 500 is a mid-single-digit type experience this year (5-7%).”
- “Fixed income mathematically looks like a pretty good spot right now.”
Thank you to all who attended this quarter’s webinar! Stay tuned for details on the Q2 Virtual Lunch Webinar.