Expectations that the Federal Reserve (the “Fed”) will halt interest rate increases, with the last increase taking place at the July 2023 meeting, resulted in enthusiasm for both stocks and bonds during Q4.
The S&P 500, Nasdaq, and Russell 2000 indices rose 24.2%, 43.9%, and 15.1%, respectively, for the year.
The two-year Treasuries, which reflect the Fed’s monetary policy, closed at 4.23% for the year.
The 10-year Treasuries, which reflect the economic outlook, inflation expectations, or both, closed at 3.88% for the year, unchanged from the previous year.
At The Family Office, we currently favor credit over equities and believe that the 60/40 portfolio strategy should be adjusted to include a significant allocation to alternatives.
There are currently five prevailing assumptions for 2024:
- Six policy interest rate cuts by the Fed in 2024. However, The Family Office believes that there might only be three or four cuts.
- No economic slowdown leading to a recession.
- Reasonably solid corporate earnings.
- No additional geopolitical turmoil.
- No domestic political chaos in the US, in light of the upcoming presidential elections in November 2024.
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