I often write about how nothing great was ever achieved without enthusiasm, that throughout our careers it is best to pursue that which excites us rather than bores us. It may be best to discard this bit of life advice when it comes to investing.
While today’s 24/7 business news networks, blogs, podcasts, and talking heads are tasked with embellishing any story for their audience, seasoned investors know that stock markets typically favor stability, the boring stuff.
There are four major benchmarks investors ought to pay mind to, and ought to hope they don’t grab many headlines in 2024.
- GDP (Gross Domestic Product) Growth
GDP growth in 2023 has been surprisingly strong. According to the Bureau of Economic Analysis, in the third quarter of 2023, GDP grew by 5.2%. For context, the historical average in the U.S. has been 3.20% from 1947-2023. The recent increase reflected increases in consumer spending and inventory investment.
This growth is expected to moderate in 2024 as consumer spending and capital investing falls as job gains slow and higher interest rates tighten bank lending. Investors have gotten used to hearing the “bad news is good news” line in the Fed’s fight against inflation over the past two years, a better depiction might be “modest news is good news”, which is what this gradual slowdown implies.
The low rate of unemployment amid the Fed’s historic rate increases has puzzled many economists. Unemployment has hovered between 3.4% and 4% since the end of 2021. Sustained low unemployment is all that kept the oft talked about recession from technically not occurring in 2022.
Low unemployment is also what Fed Chairman Jerome Powell has leaned on throughout the rate hikes as support that the economy can withstand a slowdown. However, the United States’ tight labor market may be more a symptom of labor force participation than job creation.
According to the latest Census projections, the population aged 18-64 is expected to rise just 0.1% in 2024. To learn more about population dynamics and its affects on entitlements and the economy at large and US dependency on immigration, I recommend reading the “Population” chapter in What Should I Do with My Money?: Economic Insights to Build Wealth Amid Chaos.
This has been the buzz word the past couple of years, but fortunately appears to be losing its luster. In November 2023, the latest CPI report, showed inflation rose 3.1% over the past year, down from 7.11% last year, and getting closer to the Fed’s target rate of 2%. Oil markets have stabilized since Russia’s invasion of Ukraine and the global supply chain has largely been restored since the pandemic.
As the “froth” of stimulus payments, enhanced unemployment, quantitative easing, 0% interest rates, and other boosts during COVID-19 dwindle, slowing inflation could point to actual rate cuts by the Fed in 2024.
Maybe the only word said more than “inflation” in the news the past two years, the economy has managed to avoid a recession. With the expectation of unemployment continuing to stay relatively low, and GDP growth going from strong to moderate, the chances of a recession in 2024 are looking less likely.
While it is just a word, and a technical definition most investors are not fully familiar with, it will always be a naughty word impacting consumer confidence. Check out this podcast episode for some recession insights-- How Does the Stock Market Perform During a Recession?.
If GDP, unemployment, and inflation can all go back to being boring economic terms news anchors prefer to avoid, investors may be able to appreciate market stability in 2024.
But, as my editor expressed concern about the subtitle of my new book referencing “chaos” and if it would be relevant over time, I calmly replied that there will always be chaos.
Investors already know going into 2024 that war in the middle east could expand, possibly drawing Israel and Palestine’s neighboring countries further into the fray, and therefore the US. They know there will be a presidential election and all the political upheaval that goes along with it. They know there will be chaos, but hopefully the boring kind.
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Bryan M. Kuderna is a Certified Financial Planner™ and the founder of Kuderna Financial Team, a New Jersey-based financial services firm. He is the host of The Kuderna Podcast and author of ,"WHAT SHOULD I DO WITH MY MONEY?: Economic Insights to Build Wealth Amid Chaos".