2024 market commentary and economic outlook

Chief Investment Officer Thierry Hasse

Happy New Year! Well, 2023 was another extraordinary year for the financial markets. We saw extreme fluctuations in the stock and bond markets driven by both economic and geopolitical factors, as well as the conclusion of the Federal Reserve’s tightening cycle.

To kick off the new year, I’d like to share with you some of the lessons and observations from last year that we will apply going forward to help you achieve your goals.

Back to the Future?

After two years of high volatility, the U.S. stock market ended 2023 near its previous all-time high, which it recorded exactly 24 months ago in January 2022.

Despite the similarity we’re seeing in stock prices, it would be a mistake to think that we are “back to the future” within the context of the broader financial environment. On the contrary, the investment landscape has changed dramatically. The Federal Funds rate, for instance, now stands between 5% and 5.25%, up from 0% in early 2022, as the U.S. Federal Reserve (Fed) executed the most aggressive rate-hiking campaign in decades in an attempt to curb runaway inflation, which proved to be far from transitory.

Satisfied that their efforts to this point are having the desired effect of bringing prices back down to Earth, the central bank has since softened its stance, opting to leave rates unchanged at each of its last several meetings and even suggesting that rate cuts could be on the table in 2024.

While we’ve likely seen the end of the Fed’s two-year tightening cycle, the era of near-zero rates and freely available capital that had prevailed since the early 2000s is effectively over. This bears significant implications for the financial markets.

What Have We Learned?

What lessons have we learned after experiencing two years of the COVID-19 pandemic, followed by another two years of drastic shifts in monetary policy? Three come to mind.

The first obvious lesson is that economists, financial experts, and money managers should be humble and measured in attempting to forecast the future of the economy and the financial markets. While many predicted that an economic recession would occur at various points over the last three years, one ultimately failed to materialize. Unemployment remains at an encouraging 3.7%, only marginally higher than the decade-low of 3.4% (source: Bureau of Labor Statistics). In fact, a contrarian view might suggest that 2024 could be the year the economy falls into a recession, as the consensus among market observers has shifted to anticipate continued growth for U.S. Gross Domestic Product (GDP). We believe the latter to be the far more likely outcome.

Our team maintains that U.S. economic growth will remain on a positive trajectory in 2024, with risks balanced between decent expansion and an inflation rate that continues to recede toward the Fed’s 2% target. There are no guarantees when it comes to investing, but the past two years have demonstrated the resilience of American companies, which have managed to grow their earnings during these tumultuous times despite significant economic headwinds. This goes to show that the U.S. market is still the best place for investors. That’s why high-quality U.S. corporations with sound leadership and strong business fundamentals will remain the cornerstone of your equity holdings at Elevage Partners.

The second lesson we can glean from these market gyrations can be summed up by Warren Buffett: “Never invest in a business you cannot understand.”

Over the last couple of years, we’ve seen investment decisions that turned out to be disastrous for those involved. Glaring examples include the implosion of FTX (the now-infamous, fraud-ridden cryptocurrency exchange) and crypto “currencies” in general, as well as the sudden collapse of once-respected financial institutions like Silicon Valley Bank, whose mismanagement ultimately cost investors and banking clients billions. These mistakes resulted in irreparable damage to investment portfolios, erasing any chance of a secure financial future.

At Elevage Partners, we seek to avoid disasters like these through diversification, proper asset allocation, industry expertise and by closely monitoring each security that comprises our client portfolios. We operate as a team with checks and balances; if we don’t fully understand the risk/return profile of a particular security, we simply won’t invest in it.

Lastly, the third and most valuable lesson of the past two years is the importance of investing for the long term and having the fortitude to stay the course in the face of market volatility. This requires an investment strategy that is informed by individualized financial planning and a proper understanding of risk tolerance.

The U.S. stock and bond markets have delivered substantial gains since Oct. 31, 2023. But just eight weeks ago, the U.S. fixed income market seemed destined for a third consecutive year of negative returns, and only the U.S. mega-caps (the likes of Microsoft, Amazon, and Meta) were showing gains after a poor 2022. However, after the Federal Reserve indicated a potential reduction in interest rates in 2024 — assuming inflation continues to moderate — both the stock and bond markets staged powerful year-end rallies. Investors who maintained their disciplined asset allocations over this period were rewarded with solid returns, while those who wavered missed out.

We’re Investing for Your Long-Term Goals

For 2024, we anticipate continued growth for the U.S. economy and modest changes to monetary policy by the Federal Reserve. Market volatility may arise from dramatic world events or the U.S. election in November, but rest assured that our investment team will keep a close eye on these issues and make adjustments to our client portfolios if any become necessary. We will continue to invest for your long-term goals, helping navigate economic and financial conditions to help ensure you stay on track.

As always, please do not hesitate to reach out with questions about the markets, your investment portfolio or any other aspect of your individual financial situation.

Thierry Hasse
Chief Investment Officer
Elevage Partners


The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.