The Independent Market Observer

Looking Back at the Markets in December and Ahead to January 2024

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Jan 5, 2024 12:38:20 PM

and tagged Commentary

Leave a comment

Looking Back and Ahead Compass

Markets rose last month, continuing November’s rally as interest rates pulled back even more on expectations of Fed rate cuts in 2024. Markets in the U.S. were up by mid-single digits, finishing a solid quarter and a very strong year. International markets were also up substantially for the month, quarter, and year. And while stocks were hot, even fixed income posted enough gains to close out the year in the black. 2023 ended with a bang.

Looking Back

Interest rates. The rally was, once again, due mainly to interest rates, which kept dropping in December. Better inflation numbers raised hopes the Fed would start cutting rates this year, and signs of slower but continued economic growth supported that idea. Between job growth moving closer to pre-pandemic levels, healthy consumer confidence and spending, and continued weakness in manufacturing, the economy seemed to be settling into a soft landing, which could keep pulling inflation downward. In response, the 10-year U.S. Treasury yield dropped back to levels last seen in August, driving markets higher.

Looking Ahead

Changing expectations. Looking forward, we may see a change in expectations in the new year. Markets have been choppy so far this month, and there is commentary suggesting that they may have gotten ahead of themselves. After a strong year-end, the seasonal factors can be less positive at the start of the year, which could be a headwind. In addition, the Fed may start pushing back on rate cut expectations, which would be another negative. Overall, in my view, conditions should remain positive in January, but perhaps somewhat less so than last month.

Current risks. While overall conditions remain positive, there are still risks. The Fed is concerned that inflation may return in some sectors, which must be watched for its effect on rates. The ongoing war in the Middle East shows signs of expanding and affecting trade routes and supply lines. And domestic politics remain a concern as the election gets closer. But with the fundamentals reasonably healthy and the macro picture stabilizing, many of the economic fears that pulled markets back last year may subside.

The markets and inflation. As we start the year, the key issues will be whether growth continues at a slower rate and inflation moves downward. Market expectations on rates have changed rapidly. If the Fed continues to act in a dovish manner, that positive reaction could continue. That said, there is a mismatch between what the market expects (six or more rate cuts) and what the Fed says (only three rate cuts). That mismatch in the past has given rise to volatility, so this is a risk to watch, even if conditions otherwise remain favorable.

Monitoring the Risks

That is the bottom line here—while conditions are good, volatility looks likely. The last two months were great for markets as rates pulled back, but conditions could change. Looking forward to the new year, we are still not out of the woods with inflation or growth. And while the trends remain positive, risks may pick up again over the next couple of months.

As of this morning’s jobs report, job growth is still healthy. The things to watch going forward will be consumer confidence and consumer spending. If they remain at pre-pandemic levels, then a soft landing looks increasingly likely, and the Fed should continue to send dovish signals. If not, we could see more volatility. Even in the case of volatility, the solid fundamentals should limit the damage and help set us up for more growth later this year. I believe this is something to watch for, but not to worry about too much.

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®