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December 2023 Market Commentary: Navigating Market Changes and Strategies

November Recap and December Outlook

After a year of closely watching Federal Reserve Chairman Jerome Powell, we're now anticipating the results of the year's final Federal Open Market Committee (FOMC) meeting. The focus is on potential rate changes and their implications for the economy.

Market Commentary Highlights:

  • Fed's Impact: Anticipation around Federal Reserve's final meeting and potential rate changes.

  • Economic Trends: Slowing GDP growth and labor market, but rising consumer confidence.

  • Market Optimism: Positive market response to possible Fed rate cuts to prevent recession.

  • Inflation and Policy: Fed's success in nearing inflation targets while slowing the economy.

  • Labor Market Shift: Job openings decrease, unemployment stable, indicating market rebalancing.

  • Market Performance: Positive trends in equity and bond markets in November.

  • Year-End Financial Tips: Strategies for retirement planning, tax planning, and portfolio rebalancing.

Economic Indicators: What They Tell Us

In November, the stock market started doing better because a lot of data suggested that the Federal Reserve (the Fed) might lower interest rates sooner than expected. They were thinking of doing this to help prevent the economy from slowing down too much and falling into a recession.

However, the minutes from the Fed's November meeting show they're still worried about inflation (which is when prices keep going up) and didn't seem ready to lower interest rates just yet. They've been really focused on keeping rates high until they're sure inflation is under control. So, it's a bit of a tricky situation for them to suddenly change their approach without looking inconsistent.

It's clear that the Fed's main goal of slowing down the economy is starting to happen. This is despite the fact that the economy grew more than expected in the third quarter. The Fed's boss, Chairman Powell, and their official statements have said that the rate increases they've already done will start to slow things down. And it looks like that's beginning to happen, with inflation moving closer to their ideal rate of 2%. The pause in rate increases that began in July might be a turning point.

But there's a question about how lowering rates earlier in 2024 fits with their plan to keep rates high to control inflation. The Fed is worried that changing their policy too much might cause the economy to get too active again, especially if investors get too excited.

Another way to look at it is that the Fed's current policy is still quite strict. Even though they want to keep the economy and inflation stable, their interest rates are still higher than what they consider a 'neutral' rate of 2.5%. So, even if they lower rates to 4% in 2024, their policy will still be on the tighter side

Chart of the Month: Labor Market Trends: A Shift in Dynamics

Job openings are decreasing, but unemployment rates remain stable, indicating a market rebalancing post-pandemic.

Source: U.S. Department of Labor data from December 2000 to October 2023. Chart: Axios Visuals

Equity Markets in November

  • The S&P 500 was up 8.92%

  • The Dow Jones Industrial Average gained 8.77%

  • The S&P Mid-Cap 400 increased 8.33%

  • The S&P Small-Cap 600 increased 7.98%

Source: S&P Global. All performance as of November 30, 2023

In November, almost all parts of the stock market (10 out of 11 sectors) did well. The technology sector was the star, doing the best out of all. Over the last three months, the overall stock market has been doing well, and by the end of November, it had almost made up for all the losses it had earlier in 2022. However, the market was still pretty unpredictable. On more than 60 days out of 230 so far, the market's value changed by 1% or more, which is a lot of ups and downs.

Bond Markets

As for bonds, the interest you could earn from U.S. government bonds (known as yields) went down a bit in November. For a 10-year bond, the yield dropped from 4.92% to 4.34%, and for a 30-year bond, it was 4.50% at the end of the month. There's this thing called the Bloomberg U.S. Aggregate Bond Index, which tracks a bunch of different bonds. It did pretty well in November, giving a return of 4.53%. This means that for the year so far, this index has actually made a little bit of money, with a total return of 1.27%.

Smart Money Moves

There’s still time to accomplish a lot for your financial plan before 2024, and there are some housekeeping things you should be sure to do before the calendar turns.

  • Do you need to take a required minimum distribution from a retirement plan? The SECURE Act 2.0 raised the age to 73, and lowered the penalties for failing to take one. RMDs are taxable income, so you may want to revisit your tax planning to be sure you keep your taxes as low as possible. You may also consider converting to a Roth account to eliminate RMDs.

  • Can you max out your 401(k)? Putting aside as much as possible lowers your taxable income and boosts the compounding of your long-term savings. The IRS catch up provision for those 50 and over increased this year, to $7,500.

  • If you have a giving heart, be sure to make your donations before year end. If you haven’t determined a giving plan, it can be a lovely family activity.

  • The market has been volatile, and your portfolio allocations may be over or under your targets. It’s a good time to tune everything up, and don’t forget to harvest any losses to offset capital gains.

  • There’s a lot to be thankful for as we head into holiday season and the turn of the year. Take some time to revisit your plans and goals for the future, and be sure you are on track with saving, investing, and protecting yourself and your family.

As we approach the year's end, it's crucial to review and adjust financial plans to stay on track with your goals.


About The Author

Alchemist Wealth is led by the expertise of Andrew J. Tudor, CFP®, RICP®, CAP® and Fred Tudor III, AFC®, MBA. Alchemist Wealth serves clients as a fiduciary specializing in providing fee-only financial planning, investment management, and retirement planning services. With over 2 decades of combined experience in financial services, Fred and Andrew bring a wealth of knowledge and personalized solutions to meet your financial goals.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

Alchemist Wealth, LLC is registered as an Investment Adviser with the State of Ohio and only provides advisory services in states where registered or otherwise exempt from registration. All information provided herein is for educational and informational purposes only and should not be viewed as investment advice. Any links to third party information or data are believed to contain accurate information at the time of publishing.

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