A Review of 2023 and Estimating the 2024 Economy

5 mins
Jon Green
December 31, 2023

The domestic and global economy in 2023 witnessed several significant shifts that have prolonged or seeded upcoming trends. High inflation, countered by interest rate hikes, has dramatically impacted how investors maintain their portfolios and consumer spending.

In this article, we’d like to review some of the major events of the last 12 months, cover potential trends in 2024, and look at a few tips investors can use to safeguard their portfolios. 

Looking back at 2023

Investors have experienced several high-impact events in 2023 that will affect the economy for the years to come. Below are the top 5 market pressures affecting investor sentiment:

Interest rate hikes

The Federal Reserve continued to raise interest rates to combat high inflation throughout 2023, with the current rate being 5.25% to 5.5%. While inflationary pressures have decreased over the years, the interest rate hike has resulted in higher rates for mortgages, credit cards, and loans. But it has also generated higher rates for CDs and other fixed-income assets.

Three major bank failures

We witnessed three of the biggest bank failures in history: Silicon Valley Bank, Credit Suisse, and First Republic Bank. These banks lacked high diversification and liquidity, and as a result, higher interest rates triggered their collapse. 

The debt ceiling debacle

While the government has momentarily shut down due to debt ceiling debates in the past, this year’s debate lasted until just a day before the United States would have run out of money. This event shook investors and advisors alike as finance professionals attempted to forecast the potential ramifications of a government shutdown during the current economic crisis.

More tech layoffs

The fluctuating economy impacted tech companies further in 2023, as multiple organizations laid off workers. Amazon, LinkedIn, Google, Spotify, Lyft, Microsoft, and IBM are just a few companies that let workers go over the past 12 months. Meta, the parent company of Facebook, announced its plan to cut 10,000 jobs in March. This has led to a shakeup in the labor market in the technology sector.

Lower consumer spending

Consumers are spending less, thus tightening an already struggling economy. While it appears that the United States narrowly avoided a recession in 2023, the surge in prices and interest rates reduced buyer confidence and buying power. 

Upcoming trends in 2024

The above factors have set the groundwork for the year ahead. We have listed some of the potential trends investors can watch for over the upcoming 12 months: 

Inflation slowdown

The current inflation rate is 3.25%, higher than the Federal Reserve’s 2% goal. As a result, it’s unlikely we will see a reduction in the interest rate moving forward. However, we may continue to see the inflation rate decline over the next year.

Five main categories can boost inflationary pressures: food, energy, core goods, core services, and housing. While these sectors have lower annualized inflation rates since 2021, they remain higher than pre-pandemic levels. Housing, in particular, leads the way with a 6.6% annualized inflation rate. 

Based on the current downward trend, we may see the inflation rate continue to decrease during 2024.

Potential recession risk

After the last decade’s lengthy bull run and the pandemic’s impact on the economy, experts attempted to predict a recession. Inflation, layoffs, and less consumer spending are certainly indicators of a potential downturn. However, the likelihood of a solid recession has fluctuated throughout the year.

The recession that was supposed to start in 2022 was then pushed back to 2023, and now we see predictions for 2024. The New York Federal Reserve, in particular, reported there is a 70.85% chance of a recession by May 2024. But much can change between now and then.

That said, it’s often a good idea to have an emergency fund ready and shift to safer investments—just in case. 

Dominance of fixed-assets

We will likely see the interest rates remain high over the next 12 months, even if we don’t see another increase. As a result, more investors may find peace of mind with short-term fixed-asset investments, such as CDs or bonds, over variable securities. Laddering investments in short timeframes, such as 3-months, 6-months, and 9-months, can help boost interest income without jeopardizing liquidity. 

More disruptions from geopolitical conflicts

Geopolitical conflicts across the globe have dramatically impacted supply chains, thus affecting the financial markets. Not only has this affected financial assets, such as commodities or stocks, but entire economies may be teetering on collapse. 

For example, the Russian invasion of Ukraine has hit its agricultural sector. Ukraine, which produces 9% of the global wheat supply and 44% of the world’s sunflower oil, has seen an understandable decrease in production. The lack of wheat supply alone will significantly harm numerous countries that rely on Ukraine as its primary source. Lebanon receives 74% of its wheat from Ukraine, Pakistan sources 59%, and Libya gets 49% from the Eastern European state. Several other countries, such as Indonesia, Turkey, Greece, and Kenya, must find alternative suppliers as the war continues. 

In more recent events, foreign investment plummeted in Israel as the country grappled with a  judicial overhaul proposal—with a 68% drop in the first half of 2023. Its current military actions in Gaza have further strained the economy, with a potential 15% annualized contraction by the end of the year. 

7 tips for an economy in flux

With so many trends compounded by the significant events of 2023, the next year is likely to be full of unexpected twists and turns. Advisors and investors attempt to predict likely scenarios, but we work in probabilities. It is impossible to forecast an accurate depiction of the year ahead.

That said, there are steps that investors can take to better position themselves in an uncertain economy:

  1. Maintain an emergency fund of 6-12 months expenses
  2. Focus on short-term investments
  3. Rebalance your portfolio regularly
  4. Adjust your financial goals and plan
  5. Explore diverse asset classes
  6. Foster a small group of trusted friends, family, and advisors to discuss investments
  7. Keep loved ones in the loop regarding investments and budgets

Want a second opinion?

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With over 40+ years of experience in the financial sector, and as a licensed fiduciary, founder Jon Green can help you look over your retirement plan and understand whether you are on track.

You can book a complimentary session
or call me at +1 (828) 884-8840.

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