The Recession That Never Came

December 29, 2023  |  Michael Reilly

Last December, nearly everyone agreed: A recession was coming.

With the Federal Reserve embarking on its fastest hiking cycle in decades, inflation cutting into spending power, excess savings drying up, geopolitical turmoil in Eastern Europe, a property crisis in China, U.S. housing affordability at its lowest level in decades, an inverted yield curve, and the stock market in the worst bear market since 2009, all the evidence seemed to point in one direction.

Economists — including those on the Fed’s staff — had widely expected a recession this year as the central bank raised interest rates to bring down persistently high inflation.

The economic downturn never came, though.

Instead, the GDP actually rose in the 4th quarter to nearly 5%.

That’s the problem with making predictions about the economy.

Even the best economists aren’t very good at it. The recession never came, and the stock market surged.

As it turned out, the 2023 economic story will be remembered as one of a resilient U.S. consumer as people opened their wallets more than economists had projected.

That occurred largely because Americans entered the year with more money than many realized, backed by trillions of dollars sent into the economy during the pandemic.

And with consumers representing nearly 70% of GDP… they helped keep the U.S. economy from falling into a recession.

What’s more, the Personal Saving Rate, the percentage of their income that people save, has leveled off and begun to uptick.

The bad news is that the current level of 4% is less than the average of 7% seen pre-pandemic.

With consumer confidence softening, and now that the holiday season is closing, it will be important to observe consumer activity as we enter 2024.

One warning sign is that credit card delinquencies have been steadily rising, a sign that the consumer may be getting stretched.

Looking ahead to 2024

Will growth continue to lead?

It’s remarkable how market leadership has reversed course with the turning of the calendar over the past few years.

Value took charge at the end of 2021, then handed the reins back to growth at the end of 2022. Now, the Growth/Value ratio is right back to where it was two years ago.

Will value fall back in favor in 2024?

Stocks have had a great year, but the S&P 500 hasn’t broken out. At least not yet.

Can we expect stocks to blow right past this level as if it doesn’t exist? Or does resistance matter?

A rejection here – just when investor sentiment has shifted to bullish extremes – could set the stage for a difficult first half.

For now, the offense remains on the field.

Will gold ever break out?

We’ve been watching $2,100 for what seems like forever.

Will gold ever break out to new highs?

Maybe 2024 is finally the year that gold finds itself back in the limelight.

Gold’s gone roughly nowhere since the 2011 peak.

The last time we saw a decade-long consolidation resolve higher, the yellow metal jumped more than 300% over 5 years.

This for sure seems like one to watch.

That’s all from us for 2023.

Wishing you a very Happy New Year! See you in 2024!

If you’re thinking about hiring a financial advisor to navigate the ever-changing markets, schedule a free consultation with one of our experienced team members. We’re currently accepting new clients with investment portfolios valued at $1,000,000 or more, or $200,000 or more if you already have an advisor. There’s no risk in exploring if we’re the right fit for your financial goals. Contact us today.




Get Our FREE Guide

How to Find the Best Advisor for You

Learn how to choose an advisor that has your best interests in mind. You'll also be subscribed to ADAPT, Avalon’s free newsletter with updates on our strongest performing investment models and market insights from a responsible money management perspective.

Avalon_NewGradient_24Feb22 copy