January 30, 2024

Market Commentary

Q1 2024 Quarterly Market Update: 

Trek Wealth Insights & Trends 

By: Kaitlyn Laney, CFP®

To understand the road ahead, it is important to reflect on how far we have come. If we go back in time a few short months ago, it was a wild ride. During the last part of 2022, stock markets had fallen about 20% from their highs, and the headlines for 2023 were crowded with predictions of an impending recession. The runaway inflation we saw in 2022 and 2023 was not only felt by the markets but also by people fueling up their cars and buying groceries. The U.S. economy proved exceedingly resilient, avoiding a recession even in the face of the Federal Reserve continuing to raise interest rates. The efforts by the Federal Reserve to combat inflation have seemingly proven successful, and U.S. consumers remain in solid shape heading into 2024 with easing inflation.

Looking ahead into 2024, we remain watchful of labor markets, declining inflation, and capital expenditures by business. Key Themes for 2024 include:

• U.S. economy has proved surprisingly resilient.
• Inflation is stabilizing.
• Keeping your money working.

U.S. Economic Expansion
While all forecasts are seasoned with mixed results and are far from an exact science, one of the most notable models in the financial industry is Vanguard’s Capital Market Model (VCMM). VCMM is a proprietary financial simulation tool developed to forecast distributions of future returns for various asset classes. According to the latest economic outlook by Vanguard powered by VCMM, the robust performance of the economy can be attributed to a thriving labor market. Consistently generating over 225,000 new jobs each month of 2023, substantial job creation has made a noteworthy contribution to bolstering household balance sheets, which were already robust due to the fiscal support received during the pandemic. This backdrop laid a solid foundation for consumers and contributes to the strong momentum heading into 2024.

Another area of the market that Trek Wealth has identified as an opportunity for our investors is in the small sector. Despite the Russell 2000 small cap index remaining over 20% below its peak in November 2021, its valuation (measured by relative price-to-book value) is currently in the bottom decile of its range. Notably, since 1960, small stocks have historically gained more from both rate cuts and earnings acceleration compared to larger stocks. We will be actively seeking opportunities in this space to leverage potential areas of strong performance throughout 2024.

We agree that the U.S. economy has proven to be surprisingly resilient in the face of 2023 head winds – including bank failures, limited access to capital, and a decline in housing construction. The late cycle expansion may face greater risks as the year progresses, but for now the economy remains on solid footing.

U.S. Inflation Slowing
The Federal Reserve breaks down inflation components three ways: goods, housing services, and services exclusive of housing, which compose about 40%, 30%, and 30% of U.S. inflation, respectively. In Q4 of 2023, consumer price inflation showed a notable decrease, approaching 3% compared to the peak of 9% in 2022. The significant drop in price of goods, transitioning from a 14% inflation rate in 2022 to nearly 0% by the end of 2023, played a crucial role in this decline.

Time in the Market
The past year has underscored the inherent nonlinearity and unpredictability of markets. This unpredictability emphasizes the significance of collaborating with your financial advisor to adhere to an investment strategy aligned with your financial plan. Despite the market’s fluctuations over the past decade, allocations to stocks, bonds, and money markets have demonstrated remarkable stability. Missing just the 10 best days in the market since 1988 would have resulted in returns 2.5% lower than staying invested. Unfortunately, the best and worst days often occur in clusters, reinforcing the need for a resilient and consistent investment approach.
The environment of rising interest rates has produced one of the best opportunities for savers in the past two decades. Higher interest rates mean higher returns and yields for bond holders. Leveraging high quality corporate bonds and intermediate treasuries in the portfolio will enable us to significantly de-risk portfolios while generating the foundational returns investors have long awaited.

In conclusion, while 2024 may bring its own unique set of challenges for investors, we believe that it is crucial to remain steadfast in our diversified approach while closely monitoring changes to labor markets, jobless claims, and consumer financial obligations to stay informed about the economic landscape and potential shifts in financial stability.

Sources: Vanguard.com, Fidelity.com, and Blackrock.com

Advisory Services offered through Sowell Management, a registered investment adviser. Assets custody and online access through Fidelity Investments. This material is for information purposes, educational purposes, and/or illustrative use only. The material presented does not constitute investment advice and is not intended as an endorsement of any specific investment. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. Investing involves risk including the potential loss of principal, and unless otherwise stated, are not guaranteed. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. The opinions expressed are that of Trek Wealth Solutions and not necessarily Vanguard.com, Fidelity, or Blackrock.

The views are subject to change and are not intended as a forecast or guarantee of future results. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Trek Wealth Solutions believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Trek Wealth Solutions’ view as of the time of these statements. Please check source material for more details.

This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  It is a market value weighted index with each stock’s weight in the index proportionate to its market value.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 actively traded “blue chip” stocks, primarily industrials, but includes financials and other service-oriented companies. The components, which change from time to time, represent between 15% and 20% of the market value of NYSE stocks.

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Advisory services offered through Sowell Management, a Registered Investment Advisor.