News & Our Thinking


How 2023 Broke Investor Expectations

28 December 2023

Ward Brown takes a journey through the unexpected twists of 2023. From dire predictions for a negative year for stocks to the surprising resilience of the economy, he explores the impact of interest rates, labor market dynamics, and other trends. Can the case be made for optimism in 2024? Stay tuned to find out.


Hello, I’m Ward Brown, standing outside the old Tivoli Movie House. I’ve always liked looking at the market through a visual lens. As we close out the year and head into 2024, let’s take a look at some pictures of where we have been and where we might be headed as the New Year approaches.

In 2023, the most rapid Federal Reserve interest rate increases in history were supposed to lead to a collapsing jobs market, weaker consumer spending and corporate earnings and even corporate defaults. But here we are at the end of the year, and not only did none of these things come to pass to any notable degree, but the economy and stock market have held up entirely better than expected. So what happened? And where do things sit today?

First, if investors are overly pessimistic, positive surprises are just easier. And much more importantly than that, higher interest rates just did not have the kind of impact that was expected on either the labor market or the economy. The labor market has loosened up a bit, but the US unemployment rate at 3.7% is still historically low. There’s also been some retrenchment in consumer spending, especially on more discretionary things. But experience-based spending, such as for travel and dining out has held up. Some of that is thanks to the benefit of higher wages.

So how about corporate earnings? A healthy labor market, abundant fiscal stimulus and multiple positive long-term trends, such as the explosion in demand for all things AI, the reshoring of US manufacturing and demand for new homes have meant earnings are holding up okay. Expectations for next year in the S&P 500 are for 5% sales growth, 10% earnings growth. It’s pretty good.

Inflation generally continues to trend in the right direction, even if there are some pricing headwinds that remain stickier than we’d like. As a result, the Federal Reserve recently announced its intention to pivot from higher rates and clarified its intention to start lowering rates to a less restrictive level next year. That means they’re seeing enough of the slowdown that they wanted. How much of the slowdown in recession risk is the question heading into 2024.

Rates have already been coming down some in anticipation. Many just do not believe the Fed will be able to create the soft landing it is seeking and thus, some of the same investor fears from last year are still with us. In general, that’s not such a bad thing. It means the crowd is not overly optimistic. It is a fact that many industries have already gone through a pretty brutal downturn and are seeing signs of an upturn from here.

When the road is smoothing out for some but getting bumpier for others, it can provide for some very interesting opportunities. Mispricing for individual stocks are more common when opinions are so widely dispersed. Several notable companies in the healthcare sector are a prime example at present. The combination of resilient consumers with a cooling but not collapsing labor market, improving inflation, decent corporate earnings and skeptical investors is not a bad backdrop for stocks heading into 2024.

And then of course there is the election, but that’s a topic for another video.

Thanks very much for watching, and happy New Year.



Disclaimer: Performance returns cited represent past performance, which does not guarantee future results. Returns assume reinvestment of dividend and interest but returns do not reflect the effect of taxes and/or fees that an investment would incur. References to specific company securities should not be construed as investment advice. Not all Argent clients may own each company’s stock discussed. Argent portfolio managers may recommend the purchase or sale of these and other securities for their client’s accounts.  A list of all stocks recommended by Argent during the past year is available upon request.  Some data represented in this article is derived from non-affiliated sources Argent deems reliable. However, Argent does not perform any independent research to determine the accuracy of such information. Please visit our compliance page for additional details and disclaimers.