Investment Perspectives

Overcoming Hurdles The U.S. stock market maintained its momentum in early 2024, with the S&P 500 Index notching a second straight double-digit quarterly return —

As the saying goes, the stock market acts in ways to confound the most people and 2023 certainly lived up to that billing. For the first time in decades, perennially-bullish Wall Street strategists predicted a down year for stocks. The sentiment of individual investors was also decidedly bearish. Yet contrary to the consensus outlook, virtually all major asset classes produced positive returns in 2023.

Equity markets headed back to earth in recent months after rallying sharply through mid-summer. High interest rates and inflation are becoming the new norm. A soft landing remains a plausible scenario but there is more uncertainty today as Fed tightening continues to work its way through the system.

Defying most expectations, the stock market has moved higher this year, even as inflation remains elevated, and the Fed pursues its most aggressive rate-hiking campaign in four decades. Hope for an economic soft landing has emerged among investors, leading many to anticipate better days ahead.

A prolonged period of ultra-low interest rates encouraged complacency and risk-taking across financial markets and the broader economy. There had to be payback. Now, as policymakers ramp up rates to combat inflation, some vulnerabilities have risen to the surface, most recently in the banking sector.

It would be an understatement to suggest that 2022 proved a difficult year for investors.

Financial markets have remained under significant pressure with many investors glued to each inflation print in an attempt to gauge future Federal Reserve policy moves. The concern: Stubbornly high inflation could prompt further aggressive interest rate hikes, knocking the economy into recession.

After a remarkable market rally in 2020-21 that saw investors largely unfazed by the ongoing pandemic, persistent supply chain disruptions and surging inflation have cast a shadow this year on the economic outlook.