On Money & More – February 2024

AS WE BEGIN A NEW YEAR, we can’t help but ask if 2024 will be the year that everything finally feels “normal” for investors. Stocks and bonds have been trying to escape the shadow of the pandemic, but lingering inflation has been a reminder of the lasting impacts of COVID-era policies….

There are hopeful signs.

As we left 2023, inflation, that lasting pandemic-era nuisance, was finally subsiding. Headline inflation, as measured by the CPI, sat at only 3.1% (Nov reading). This is just modestly above the Fed’s 2% target. Other inflation readings, such as the Fed’s preferred PCE (Personal Consumption Expenditures Price Index) came in even softer. Both stocks and bonds reacted positively in the Fourth Quarter to these tampered inflation expectations and the increasing possibility of Fed Funds rate cuts in 2024. By year-end the Federal Reserve was forecasting three rate cuts in 2024. The market expectations? Six rate cuts. With the economy estimated to have grown in Q4 at 2.2% (Atlanta Fed GDPNow estimate as of 1/10/24), the possibility of rate cuts coupled with modest growth have many forecasters dreaming of a “soft landing.” It appears the worst of the inflation is behind us, as the nearby New York Fed data shows inflation expectations near their historical averages. With lower inflation, lower rates, and strong growth, what could curtail this otherwise rosy picture for the economy? Why does the Conference Board’s Leading Economic Indicators continue to forecast a recession? Why has the yield curve been inverted, which is a traditional recession indicator, since July 5, 2022? The longest inversion since 1980! The answer to these questions remains elusive, but in our view the questions should not be ignored.

As we enter 2024, the equity bull market remains intact with stocks not far from all-time highs. Most of the hard work fighting inflation is behind us. But these lingering questions impact our preferred market positioning. While equities should benefit from a lower rate environment, this is still an economy that contains risk. Ask a long-term Cutler client what types of investments we prefer, to manage market risk—and the answer is likely to be “income.” And in today’s investing environment, income is once again available.

All opinions and data included in this commentary are as of January 10, 2024 and are subject to change without notice.  The opinions and views expressed herein are of Cutler Investment Counsel, LLC and are not intended to be a forecast of future events, a guarantee of future results or individual investment advice including the asset allocation provided. Nothing herein should be construed as tax advice. This article is provided for informational purposes only and should not be considered a recommendation or solicitation to purchase or sell securities. This information should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Investing involves risk, including the potential loss of principle. Neither Cutler Investment Counsel, LLC nor its information providers are responsible for any damages or losses arising from any use of this information.