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Commentary & Insights

Commentary

Market Commentary – December 2023

09 January 2024
graphic of people scouting

“I cannot conceive of any vital disaster happening to this vessel. Modern shipbuilding has gone beyond that.” 

 — Edward J. Smith; Captain of the Titanic

Captain Smith was wrong.  

Darryl F. Zanuck, a film producer, boldly predicted in 1946 that “Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.” (1) He was also wrong. 

History is replete with examples of bold predictions that fail to materialize. Closing the books on 2023, we can now add the near consensus call for a recession in the U.S. that was expected to get underway before the end of the year. Didn’t happen. Andrew Pease, the Chief Investment Officer of Russell Investments, recently said, “I’ve never seen the consensus so wrong.” (2)

So, what exactly foiled the predictions and how did WCF respond?

Bond Market Off-Track

Given the surge in consumer prices experienced in 2022, the Federal Reserve Board had little choice but to pursue an aggressive interest rate hiking campaign. The graph below depicts the steady rise in the Fed Funds Rate—a key tool for implementing monetary policy. (3) 

FRED graph 1 revised 

Yet, the 10-Year Treasury yield started 2023 at 3.89% and dipped down to 3.30% by April 5. (4) How could bond yields drop while the Fed engaged in raising rates? The Fed operates and exerts considerable influence over short-term yields. The 10-Year Treasury, by contrast, reflects the financial market view toward inflation and economic growth. Thus, when the March 10 failure of Silicon Valley Bank spooked the markets, recession fear drove capital into the safety of longer-dated Treasury Bonds. The mini crises in regional banking failed to metastasize and the economy continued to grow, while unemployment hovered near historical lows. Inflationary pressures eased through the summer but not rapidly enough to satisfy the Fed that maintained tough rhetoric regarding rates. Fed Chair Jerome Powell addressed the Economic Club of New York on October 19, insisting that rates would have to stay higher, longer. (5) Ironically, yields on the 10-Year Treasury would peak that day at 5.0% before their steady descent, roundtripping to 3.84% by the end of the year—essentially where they started. Compare the graph above to the roller coaster experienced with 10-Year Treasuries. 

10 Year Treasury Rate graph 2

Stock Market Off-Track

When tabulated for 2023, earnings on the S&P 500 might grow less than 2%. (6) Considering the lack of growth, the aggressive monetary tightening, and the starting valuation (above historical average), it should have been unreasonable to expect much from the stock market in 2023. Wrong. Large stocks, small stocks, and foreign stocks were all stellar—producing double-digit returns.

And the Cost?

 It’s a trick question. We are cognizant of interest rates and the economic cycle but refuse to make macroeconomic bets with your money (or ours, considering we eat our own cooking). It would have been easy to stay out of bonds in 2023 in anticipation of steadily rising interest rates. We didn’t, because we don’t time the markets. It would have been easy to stay out of the stock market in 2023. We didn’t, because we don’t time the markets.

Why don’t we time the markets? Charlie Munger, Warren Buffet’s co-pilot since 1978, passed away in 2023 just shy of his 100th birthday. When asked about the secret to his success he provided a single word response: “rational.” (7) The evidence does not support dashing into and out of markets. Munger addressed this eloquently when he said, “If you’re going to invest for the long term, there are going to be periods when there’s a lot of agony and other periods where there’s a boom. I think you just have to learn to live through them.”

Next? 

The stock and bond markets partied hard the last quarter of 2023 on the presumption that the Fed “nailed the landing” by taming inflation while side-stepping a recession. Perhaps. However, the impact of monetary policy might not manifest for 6-24 months, making the soft landing something short of a cinch. (8) The wide dispersion in projections made public by the ten largest firms on Wall Street further support this uncertainty. The best forecast calls for a 7% gain in the S&P 500 in 2024 and the worst, a loss of 12%. (9) The top and bottom come from two well-branded firms that employ a combined 330,000 people.

We see two powerful forces on a collision path. The S&P 500 trades at approximately 19.6 times the 2024 forecast earnings of $245—far from cheap. However, interest rates might continue to ease into the New Year and momentum, (gains beget gains), remains quite strong. We will have to reckon in 2024 with a major election, the possibility of a recession, and the risk of expanded geopolitical conflicts. 

Munger once said, “We have the same problem as everyone else: It’s very hard to predict the future.” We empathize and remain predictably more driven by discipline than crystal balls. 

 We find solace in the following:

  • Equity markets are inherently volatile. Going back to 2008, the S&P 500 has experienced only four years with single digit returns, with 12 years of either positive or negative double-digit performance. Yet, the index has returned approximately 10% annually since 1957, approximately 10% annually since 1973, and 11.9% in the past 10 years. Long-term performance in equity markets, unlike annual returns, is “reasonably consistent.”
  • Should the economy stumble, interest rates would drop. Thus, our strong commitment to owning bonds because of their ability to provide portfolio buoyancy should we dip into recession.
  • Thoughtful investing must encompass financial planning. Guardrails are constructed in each plan to ensure you have sufficient liquidity to meet near-term needs, permitting deployment of more volatile investments (e.g., stocks) to accomplish your longer-term goals.

The Past

The financial markets glean lessons from studying the past. However, one cannot simply extrapolate the past into the future, a lesson well documented by Nassim Nicholas Taleb in his 2007 book, The Black Swan.

WCF has our own past. We want to take a moment to acknowledge 2023 as our 40-year anniversary. We are humbled and honored by your trust and confidence in our guidance over many decades. We are grateful for our remarkable team that embraces the mission of helping others.


  1. “14 spectacularly wrong predictions.” CNBC.com; August 27, 2014.
  2. “How Wall Street ‘Got Burned’ on Three Bad Calls.” Bloomberg.com; December 29, 2023.
  3. Federal Reserve Bank of St. Louis; FRED.
  4. YCharts.com.
  5. “Here Are the Takeaways from Powell’s Remarks at Economic Club of New York.” Bloomberg.com; October 19, 2023.
  6. “S&P 500 EARNINGS SEASON UPDATE.” FactSet; October 27, 2023.
  7. Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger.
  8. “Beware of Time Lag in Monetary Policy.” Institutional Investor; March 6, 2023.
  9. “What Could Go Right (and Wrong) in the Markets Next Year.” FactSet.com; New York Times; December 29, 2023.