Taking a stab at listing the “Top 5″ or “Top 10” events of 2023 is challenging – and subjective. Less subjective is highlighting two events that got the attention of nearly all participants in US stock and bond markets in 2023:
- The rise of interest rates to levels not seen in over 22 years
- The collapse of Silicon Valley Bank and at least two other banks
The increase in interest rates was inevitable – and arguably necessary – to control dangerously high inflation in the US economy. In the bigger picture, inflation can ruin household budgets in the present and future. Making progress on lowering inflation will continue to be a good thing. The US Federal Reserve Board seems to have reached a “pause” in their interest rate increases – and that is a welcome development for potential home buyers and borrowers of money for cars, home equity lines and the like. Whether or not inflation has been contained has still not been established but at least the rate of inflation has slowed. More to come in 2024 on the inflation front.
The increases in interest rates also revealed major weaknesses in numerous areas of the economy and markets. One area was certain bank balance sheets – which led to the failure of Silicon Valley Bank and at least two other banks. The collapse of cryptocurrency exchange FTX and a severe lack of regulation were major factors in SVB’s failure. The bank’s failure was the 3rd largest in US history and the largest since the 2007-2008 financial crisis. The failure highlighted the ability of the US government to step in and guarantee bank deposits far, far beyond legal, established FDIC coverage limits. The ramifications of that action may not be seen for years, if ever.
Looking ahead to 2024, clients and friends can still remain pleased with current rates of interest on cash and short-term (two years and less) US Treasuries and CDs. Stocks could continue to get a short-term boost from a “pause” in US Federal Reserve and global bank rate hikes, but there are still risk factors to consider. An asset allocation that includes a healthy amount of globally diversified, liquid stock ETFs can contribute to keeping up with inflation and growing portfolios in the long term.
There are still two weeks remaining in the year! Happy Hanukkah celebration and Christmas preparations!
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.