By: Matt Garrott

What Happened in 2023

2023 was a surprise to the upside.  Inflation dropped, a much-anticipated recession never arrived, and the S&P gained 26.3%.  Famed investor Peter Lynch said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”  Investors who positioned for poor returns in 2023 created some for themselves.  The tricky part of this is that just seven mega-cap stocks drove the majority of the S&P 500’s returns for the year.  The remaining stocks experienced more pedestrian returns.

Like every year, 2023 was expected to be a stock picker’s market.  Jon Ferro of Bloomberg made an interesting note one morning: the phrase “stock picker’s market” is generally paired with the future tense rather than the past tense.  It’s usually “Next year is going to be a stock picker’s market” not “Last year was a stock picker’s market”.  How did 2023 go?  The S&P 500 outpaced 75% of active large cap blend managers during the calendar year.

The S&P 500 was up on Mondays 75% of the time in 2023.  Thursdays and Fridays were up about 55% of the time.  Tuesdays and Wednesdays were only up 44% of the time.  There’s no real reason for this.  To assign predictive meaning and causation would be silly.  Now think about the thousands of different soundbytes of data spit out by financial media and how much weight should be assigned to their predictive ability.  Side note: I tried to use AI to calculate the data for the days of the week, but its answers were wrong and I had to assemble the data myself. The good news: Fairway will have a human Director of Investment Research for at least another year.

Fairway had a busy hiring year.  Alex Canitano, Taylor Papiernik, and Shawn Hapanowicz joined the firm.  We had an intern this summer, Coleman Mowrer.  We were pleased to welcome back Erica Robinson as well.  We are also expanding our office in anticipation of growing headcount in the future.  More employees means additional support for our existing clients and more capacity to accept new clients.  If you have a conversation with someone who is concerned about their investments, worried about recession, or is anxious about another personal financial event, please connect them with us.  A joint email goes a long way.

Buzzwords:  10/7, 5% 10-Year Treasury, Higher for Longer, AI, Ozempic, Mortgage Rates, Flacco, Silicon Valley Bank, CINDY (Cash Is Now Delivering Yield)

Outlook for 2024

If the Global Financial Crisis ushered in a “New Normal”, the recovery from the Pandemic has returned markets to the Old Normal.  Interest rates that feel shockingly high relative to ZIRP (Zero Interest Rate Policy) are actually historically average.  Inflation has averaged 3% historically.  Unemployment averages 5.7%.  Today, inflation stands at 3.1% while unemployment is 3.7%.  Thirty-year mortgage rates average 7.7% historically.  They’re at 6.6% today.  The last 15 years were an outlier, not a permanent shift.

Nobody knows what will happen in 2024.  We don’t know either, but as markets approach or surpass their all-time highs, remember all-time highs are not a ceiling.  Whether we break through to new highs in 2024 or later, there will be howls along the way that the market is expensive because it’s making new highs.  There has always been a contingent who says this.

I don’t usually make predictions, but I feel safe saying that not only will 2024 feel longer due to nonstop electioneering, it will actually be a day longer because it’s a leap year.

Last year, consensus views were for a recession.  This year, experts mostly agree the economy is in for a soft landing.  We are skeptical when the experts agree on anything.  Investors who followed the narrative last year missed out on a giant rally.  Just as we didn’t panic in 2023, we will not be complacent in 2024.  We suggest maintaining a diversified portfolio that does not rely on crystal balls and guesswork.  Predictions are more marketing than analysis.  The forecasting horse race happens every year and if anyone bothered to check, the experts are usually way off.  Some firms have found a way around this: have multiple employees make predictions.  Whoever gets closest is paraded around the media as evidence of the firm’s market savvy.

There is one evergreen certainty for the markets: financial salespeople want you to put your money in motion.

Annual predictions often focus on what will change in the coming year, but it can be more valuable to recognize what isn’t changing.  Rebalancing and tax loss harvesting will continue to serve investors well.  Be mindful of taxes, especially when anyone suggests you put your money in motion. Chasing yield or returns will increase the odds of an unforced investment error.  Investors should say no (or have us say it) more often than they say yes to pitches.  Just like every other year, Wall Street expects 2024 to be a stock picker’s market.  Just like every other year, we suggest ignoring the sales pitch and keep with what works over the long-term. Control costs, manage taxes, and most importantly, stick to and execute on your individualized financial plan.  We continue to emphasize passive investing, but active wealth management.  Too many investors get these concepts reversed to the detriment of their wealth and peace of mind.

If you request that we move money via wire transfer, expect a phone call from us to confirm.  Scams are getting more sophisticated.  The best way to protect our clients is to obtain a verbal confirmation.

The news is unrelenting and consistently negative.  As usual, we will be reaching out to you throughout the year, but if you feel the urge to pick up the phone and talk about anything, we are here.  Retirement goals are being hit.  People are getting married.  Babies are being born.  We want to hear about it.  It’s easier than ever to fall into social media or the news cycle and forget that there are reasons to celebrate and there are people to share those triumphs with.

We are thankful and humbled by the support and kindness we’ve received from our clients this year.  We promise to deliver on our core values: Integrity, Service, Reliability, Insight, Excellence, and Results.