The 2024 Macro and Market Outlook

As we exit 2023, all I can think of is how it was a year replete with dichotomies and divergences

As we exit 2023, all I can think of is how it was a year replete with dichotomies and divergences. Focusing on the United States, an unprecedented gap emerged between real GDP (Gross Domestic Product) growth, which signaled a “soft landing” had been successfully engineered by the Federal Reserve, and real GDI (Gross Domestic Income) growth, which provided support to the minority view that a recession had arrived. The same thing is true for employment, where the Establishment Survey showed ongoing gains in nonfarm payrolls, and the companion Household survey revealed serious cracks in the labor market, showing plunging full-time jobs through the second half of the year.  

Not to mention the stock market, where the cap-weighted S&P 500 posted impressive gains for much of the year at a time when the average and median stock represented in the S&P 500 equal-weighted index remained mired in deep correction territory. Even in the bond market, Treasury note and bond yields soared yet again— not because of investor-based inflation expectations, which actually receded this past year, but because of a surge in real interest rates, which reflected the reset to the extended Fed tightening cycle and the promise of “higher for longer”. All this from a central bank that at the end of 2021 had published a median prediction for the policy rate at the end of 2023 of 1.6% (instead of the 5.5% we ended up at… with Jay Powell playing the role of Lucy and the rest of us taking on the role of good ol’ Charlie Brown).