2023 Recap
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By Ben Dolan
Here’s a quote from James Mackintosh, author of the Streetwise column in the Wall Street Journal, in December of 2022: “If the economy shrinks next year, no one should be surprised. We’re facing the most widely forecast recession in history…The regular Wall Street Journal survey finds economists think there is a 63% chance of recession in the next year. And a survey of economists and investors by the Federal Reserve Bank of Philadelphia shows expectations that gross domestic product will fall in three or four quarters are by far the highest since it started in 1968.”
Here's the title of Mr. Mackintosh’s column on December 29th, 2023: “How I, and Everyone Else, Got 2023 So Wrong.” He’s eating crow, as are many in the prediction business (this is nothing new for them, by the way). Turns out the inevitable recession was anything but.
Many investors were scared at the beginning of 2023, opting to pull money from stocks and bond funds. Others figured they would take advantage of improved interest rates while markets decline (a bit of silver lining to all the rate hiking by the federal reserve to tame inflation). After all, at the end of 2022, risk free US T-bills were earning 4.15% (and 4.76% at the end of March 2023), so doesn’t it make sense to earn close to 5% on cash while markets decline? That depends on how good your crystal ball is.
According to data compiled by Morningstar, here’s how broad market indices fared in December 2023, and for the 2023 calendar year:
Final inflation numbers for December and all of 2023 are not in yet. Still, with the average around 4.5% for the year through November, cash investors barely outpaced inflation. Those brave souls bucking the forecasts and investing broadly in stocks indexes were rewarded with meaningful gains well above that of inflation.
2023 turned out to be an excellent lesson in investment theory (and humility). Predictions about the future, even when performed by self-proclaimed sages with supposedly impeccable credentials, are nothing but that: a prediction.
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Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors, Inc., a SEC-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.