Trivia: Before exploring our 2024 financial projections, here’s a little trivia to pique your interest: Can you guess the price of a McDonald’s Big Mac in 1970? (See answer below.)
will lead you to a treasure trove of prosperity.
Today, we’re concluding the year with three 2024 financial projections.
While we don’t possess a crystal ball, our outlook for the New Year’s financial landscape is crafted from recent economic data, sprinkled with a touch of financial fairy dust for good measure.
Brief 2023 Reflection
Before forecasting, let’s reflect on one popular 2023 estimation that missed the mark—analysts projected a recession that never materialized.
Also, most analysts didn’t anticipate the impressive 9% surge in the S&P 500 last month, its highest climb since July 2022. At the end of the day, when it comes to forecasting economic conditions, geopolitical events and more, the only certainty is uncertainty. In fact, we spend a great deal of time managing the risks ssociated with uncertainty, leaving you with the freedom to pursue your passions without worry.
Projection #1—Interest Rates Fall Late 2024
It’s likely interest rates will remain the same well into 2024.
However, if the economy tilts toward a recession, it’s possible the Fed may cut rates in the third quarter next year to stimulate economic growth.
Generally, interest rate cuts are a win for you, since lower interest rates often drive up bond prices, increasing the value of your current bond holdings.
Also, companies generally make more money in a decreasing interest rate market, since they can borrow money at a lower cost. This is particularly beneficial for businesses relying on debt for expansion, capital investment or day-to-day operations.
Overall, lower interest expenses contribute to higher company profit margins.
Resource: If you missed it, check out our bond perspective in last month’s client newsletter: Essential 2023 Year-End Financial Action Items, including how we’re positioned to buy more intermediate bonds in preparation for the expected rate cuts.
Good News!
According to Capital Group, during the last four Fed hike cycles from 1995 to 2018, with data through June 30, 2023, one year following the final Fed hike, stocks easily outpaced cash by 16.2%.
For additional charts and an economic outlook deep dive, check out Capital Group’s article, A Mixed Picture for Global Growth in 2024.
Projection #2—Inflation Will (Slowly) Fall
The current inflation rate is about 3.25%, down sharply from its 9.1% high in June 2022.
However, the Fed wants the inflation rate lower (around 2%).
Why? Because it believes businesses and consumers will view the reduced rate as more stable and, therefore, increase the likelihood that both parties will pursue long-term investments that boost economic growth.
We predict inflation will fall some.
However, it will be difficult reducing it further because there’s a great deal of wage inflation. Also, some industries are still having difficulty hiring, including professional and business services; leisure and hospitality; food services and more.
For Example:
According to a recent U.S. Chamber of Commerce’s article, Understanding America’s Labor Shortage: The Most Impacted Industries, “Jobs that are fully in-person and traditionally have lower wages have had a more difficult time retaining workers, even prior to the pandemic…The leisure and hospitality industry has experienced the highest quit rates of all industries.”
Projection #3—Food Prices Will Continue To Rise
It certainly would be nice if food prices would return to pre-pandemic levels, yet it’s unlikely. Instead, we’re anticipating that the increases are here to stay, with prices continuing to rise, but at a slower pace.
Earlier this year, we discussed grocery pricing truths. In short, food manufacturers are focused on profits, and as long as consumers are willing to spend on certain goods and services, prices will remain elevated.
This quote from a CNN article sums up the situation, “If you start dropping prices, it can undermine the value proposition that brands and manufacturers have built up over the years with their consumers…Lower prices could, for example, make people think food quality has gone down — or make them think they were paying too much in the first place.”
Also, the USDA is forecasting a 2.9% increase in food prices for 2024.
Your Portfolio
Windsor Wealth Management maintains a cautiously optimistic view on the economy and the financial outlook for 2024.
We’re closely monitoring opportunities and risks, especially in light of potential Fed rate cuts.
Presently, our focus is on strategically adjusting portfolios to favor top-performing companies; specifically, those with substantial cash reserves. Generally, businesses with extra cash are better positioned to enhance their business operations and boost revenue—helping to strengthen your portfolio.
Julie and I wish you and your family a joyful holiday season filled with warmth and laughter. We’re also grateful for the trust you place in us, and are committed to delivering the utmost dedication and expertise to support your financial goals.
Here’s to a wonderful year ahead!
Happy Holidays,
Dave
Trivia Answer: 65 Cents (Today, the average price of a Big Mac meal is $6.05.)
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