From Morningstar:

The market defied expectations by ending positively in 2023. Despite hikes in interest rates and geopolitical tensions, the Morningstar US Market index climbed by more than 25% for the year, with stocks and bonds both showing impressive gains. Analysts predict that falling interest rates and low inflation mean the re-emergence of core portfolio strategies that were once effective.

Investors were predicting a third straight year of declining bonds as yields and interest rates soared in 2023. However, as the market grew confident that Fed cuts would occur in 2024, bonds rallied in the fourth quarter, to the surprise of many. Data suggests this momentum is likely to continue into the new year, with analysts suggesting new opportunities for the investor in 2024.

Analysts encourage placing investments in extended-duration bonds after the fall in interest rates, following consistent high-yields on uninvested cash for the past two years. They advised that it is better to lock in the high yields now and benefit from falling yields by having more duration or interest rate risk in the portfolio following the periods the Fed has made cuts.

The heavily weighted tech stocks that bolstered the equities market may not continue to dominate the market in 2024. Instead, the rally is expected to broaden out to include areas that previously lagged behind, such as small caps and international stocks. The predicted trend for 2024 is increased diversity in the equities market.

A slowdown can be expected in the market in 2024, caused by multiple factors including lagged effects of the Fed’s tightening cycle and the falling rates. Analysts recommended companies with strong balance sheets as a safe investment solution for any potential slow down. They advise staying cautious but comfortable in investment strategies.



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