Investment Commentary – January 2024

January 16, 2024

The past year was widely expected to be a challenging one for both the markets and the broader economy. For much of 2023, the question was not if, but when, the economy would lose steam in the face of the Federal Reserve’s aggressive inflation-combating interest rate hikes and there was a broad consensus that we would see a recession materialize at some point during the year. Instead, the labor market proved resilient in the face of tightening monetary policy and consumers kept spending, largely shrugging off the impact of higher interest rates and still-elevated inflation. This drove GDP growth to a blistering pace of 4.9% in the third quarter. At the same time, a raft of promising economic data pointed to a sustained downturn in inflation, and messaging from the Fed hinted at a more accommodating stance on the horizon. This gave many investors hope that the Fed was on the path to achieving the difficult task of providing the economy with a soft landing, meaning that inflation would return to normal levels without triggering a recession. This led to a strong rally in the markets throughout the end of the year.

As we head into 2024, the big question facing investors is whether 2023’s gains were a sustained rally that will continue to support the markets in the coming year, or if it was merely a “dead cat bounce” from the turmoil of the year before.

To read Hanover’s thoughts on the year ahead, read the latest Market Commentary by clicking here.