Broker Check
State of the Economy January 2024

State of the Economy January 2024

January 26, 2024

On January 25, 2024, we held a webinar with a special guest, Michael Riggs, a Senior Strategist at State Street Global Investors. We regularly use ETFs from State Street in our client portfolios, and they are a great partner for us. FJP Wealth Manager Scott Manley and Michael discussed important topics about the state of the US economy and the outlook for 2024. This article will recap the important points from the webinar.

In the blog this month, we will discuss:

  • Investor Sentiment
  • Current state of Inflation
  • US Federal Reserve and Interest Rates
  • Mortgage Rates and Residential Real Estate
  • What Happened to the Recession in 2023?
  • Update on the US Stock and Bond Market
  • Potential Tailwinds and Headwinds in 2024

Sign up for our email newsletter for views of the economy, stock market, and top news stories from our Wealth Managers at Financial Journey Partners.  

Investor Sentiment

Investment companies are in a unique position to see what ETFs retail investors are purchasing within their product line of funds. He shared that during the market rally in November and December of 2023, investors were buying into equity ETFs much more than bond ETFs. He shared that during these months, investor sentiment turned significantly more bullish as investors were buying the equity ETFs.

Michael shared that the Leading Economic Indicators from The Conference Board1 have been falling in the past two years. Historically, when leading economic indicators are contracting as fast as they did in the past few years, the US would have usually been in a recession. But with all the extra cash in the system from the Fed and Congressional policies, we have not had a normal recession yet.

We also discussed the Federal Reserve increasing the money supply in the US during the Covid Pandemic which resulted in a 9% inflation rate in the US. In the past two years, the Federal Reserve quickly and sharply decreased the money supply to reduce inflation.

Current State of Inflation

On January 11, 2024, the Bureau of Labor Statistics announced the Consumer Price Index (CPI) for December 2023. The “All items” inflation number has continued to fall over the past 12 months after reaching a peak in June 2022.

FJP Current State of Inflation
Source:  Bureau of Labor Statistics, December 2023 Report

As you can see on the graph above, the line for “All items less food and energy” has been dropping steadily. The more volatile line for “All items,” which includes food and energy, has been moving sideways since June 2023. The inflation data is broken down by category and the biggest declines in inflation were in the energy sector.

FJP Current State of Inflation by Category
Source:  Bureau of Labor Statistics, December 2023 Report

These sharp percentage declines in the energy sector leaves the question “Why have energy prices been falling so much?” This long-term chart of US Field Production of Crude Oil shows that the production of Crude Oil fell in the early months of the Biden Administration, then continued to ramp up to reach all-time highs in the past few months. With all this extra supply, the prices have started to come down.

Source:  US Energy Information Administration

US Federal Reserve and Interest Rates

The US Federal Reserve aggressively increased interest rates from early 2022 through late 2024, to bring down inflation. The Fed Funds rates currently stands at 5.25%. The Federal Reserve has kept the Fed Funds rate unchanged for their past several meetings.

FJP US Federal Reserve and Interest Rates

Investors are hoping that the Federal Reserve has reached their peak interest rate, will not raise interest rates further, and will begin lowering interest rates sometime in 2024. Some analysts predict the Federal Reserve could start reducing the Fed Funds rate as early as their March meeting. Other analysts predict the interest rate cuts will begin later in 2024. We will keep a close eye on this and how the actions of the Federal Reserve might affect the economy and the US stock and bond markets.

Mortgage Rates and Residential Real Estate

30-year fixed Mortgage Rates in the US go up due to increases in the Fed Funds rates and the market expectations for longer-term interest rates. The average 30-year fixed mortgage rate in the US is shown below.

FJP 30-year fixed Mortgage Rates
Source:  US Bureau, Federal Reserve of St. Louis

The 30-year fixed mortgage rate reached 7.5%, and in the past few months has fallen to about 6.6%. The prices of single-family homes in the US have held up relatively well given this steep rise in interest rates over the past several years.

Santa Clara County Median Home Price

FJP Santa Clara County Median Home Price

The US Median Home Price has also help up well during this period of rising interest rates.

US Median Home Price

FJP US Median Home Price

Many analysts have stated that a reason for home prices staying elevated is because the supply of homes is low because many people have 30-year mortgages at or below 3%. These homeowners with low interest mortgages do not want to sell their homes and take out a loan with an interest rate that is much higher. Some analysts also believe that there is a shortage of homes in the US and that is part of the reason the number of homes for sale is slow resulting in higher home prices.

What Happened to the Recession in 2023?

Many economists were calling for a recession in 2023. A recession would mean the US GDP would be declining. Instead of falling in 2023, GDP rose each quarter, reaching a surprisingly strong 5.2% in Q3 2023 and 3.3% in Q4.

FJP US Real GDP Percent Change from Preceding Quarter
Source:  US Bureau of Economic Analysis  (Seasonally adjusted annual rates)

So, what happened to the recession in 2023? One possible answer is that spending by the Federal Government increased in 2023, causing the Federal Deficit in increase to $1.7 trillion. That extra federal deficit spending acts as a stimulus to the economy.

FJP US Deficit Trends Over Time
Source:  US Treasury Department

Another factor keeping the economy strong could be the large number of open jobs in the US

FJP US Job Opentings Total Nonfarm
Source:  Federal Reserve Bank of St. Louis

The large number of opens jobs allow people to quickly find another job if they are laid off when their job is eliminated. Unemployment in the US has remained low, under 4%. Some analysts have speculated that some employers may be hesitant to lay off workers because they know it could be difficult to find new workers if the economy improves. One informal check is looking at our local shopping malls, with most people still employed, people seem to be spending quite freely.

Update on the US Stock and Bond Market

The major indexes in the US stock market reached all-time highs in late 2023. The stock market was led by the large companies, now called the Magnificent 7. They are Apple, Microsoft, Nvidia, Alphabet, Meta, Amazon and Tesla. During November and December, the stock market rally broadened to include more large companies, mid-sized and even small sized companies.

The US bond market did poorly from the start of the year into a market bottom in October. At the Federal Reserve meeting on October 25, they indicated that they may be done raising interest rates. The longer-term interest rates fell and created a significant rally in bonds in November and December, recovering the losses in the bond market that occurred earlier in the year. Investors are now trying to determine if, when, and how much the Federal Reserve may reduce interest rates in 2024.

Potential Headwinds and Tailwinds in 2024

Pulling all this information together, we see significant Headwinds and Tailwinds for the US markets in 2024 that could add some volatility through the year. They include the following:

Potential Headwinds to Hinder the Stock Market

  • Inflation could remain sticky and high
  • Federal Reserve could keep interest rates high
  • 2024 elections
  • Geopolitical instability
  • Federal Government reducing spending
  • Congress battling over the US budget
  • Leading Economic Indicators are slowing
  • US stock market near all-time highs

Potential Tailwinds to Help the Stock Market

  • Falling interest rates expected in 2024
  • Labor market remains tight causing unemployment to stay low
  • Consumer spending remains strong
  • GDP remains strong
  • Consumer confidence improving
  • Housing market remains strong
  • Artificial Intelligence Hype

The mix of headwinds and tailwinds in the market could create a volatile year. As always, we keep a close eye on the economy and the markets. We actively manage our client accounts, meaning we will add equity when we think the markets look promising, and we will reduce equity when we think there is the potential for a correction in the market. If you have questions about the economy, markets or your portfolio, contact your Wealth Manager to discuss this further.

If you are new to Financial Journey Partners and would like to talk with us about your financial situation visit ´╗┐our website and schedule a free initial consultation. We have been helping people for decades. If we are not the best ones to help you, we will do our best to find someone that is.


Financial Journey Partners

Financial Journey Partners - Partners in Your Financial Journey®

Our Financial Journey Partners office is based in San Jose, California. We have clients that live in many states across the country. If you have questions about your investments or financial situation, call us to schedule time to talk about your specific situation.

Sign up for our email newsletter to stay up to date on our views of the economy, stock market, and top news stories.

This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index.

Some views expressed are those of Michael Riggs and State Street Global Advisors and do not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates. Investment advisory services are offered through Mutual Advisors, LLC DBA Financial Journey Partners, a SEC registered investment adviser.


1 The Conference Board – US Leading Indicators´╗┐