January 15, 2024

Fourth Quarter Highlights

Financial Markets

  • The negative momentum in global equity markets in the third quarter continued in October with major indices entering correction territory. However, markets rallied in November and December with some indices nearing or setting new all-time highs when sentiment shifted away from the higher for longer scenario to investors pricing in more dovish central banks.  Small-capitalization (cap) stocks led the rally.
  • Bond yields pushed higher in October and prices fell due to higher for longer expectations. S. Treasury bond yields hit 15+ year highs.  Yields fell abruptly when key inflation measures came in slower than expected and fueled a shift in sentiment to expecting a “soft landing” and multiple rate cuts in 2024.
  • In a reversal from the prior quarter, the price of West Texas Intermediate crude oil fell 20% during the quarter. The price of gold rose and the U.S. dollar declined on expectations for rate cuts in 2024.

Overview of the Economy

  • Earnings reports for the third quarter were better than expected with a majority of companies beating analyst forecasts but some reported lower unit sales after implementing price hikes to offset higher input costs.
  • The U.S. economy continued to show resilience with a 4.9% annualized growth rate in the third quarter, the highest growth in two years, due in large part to a jump in construction spending. The labor market remains tight despite a lower number of job openings.  Retail sales grew more than expected.  New home sales rose late in the quarter as mortgage rates eased.
  • Surveys continue to show weak manufacturing activity around the world but services activity in expansion.

Notable Events

The Federal Reserve Open Market Committee (Fed) left its rate steady but adjusted its projections to show a lower fed funds rate at the end of 2024 than previously expected.  Other central banks also held rates steady