Signal in the Noise: 2023 in Review

We are excited to share our review of 2023, which we call “Signal in the Noise.” This phrase is comprised of two important components: Signal is meaningful information, and Noise is the random, often unwanted, distraction that interferes with the signal itself.

In a world filled exclusively with “breaking news,” it can be difficult to maintain the long-term perspective required to be a successful investor. In other words, it can be hard to find the signal in the noise.

In today’s recap, we will offer a few interesting notes about the investing experience in 2023, then share a couple of notes on the current state of consumers, and finish with two reasons to be optimistic about the future.

We hope you enjoy this and find it helpful in gaining perspective as we work together in pursuit of your financial goals. Please feel free to share this with others if you desire to do so.

The State of Investing in 2023:

1.      MOST FORECASTERS MISSED THE REBOUND: Toward the end of 2022, Wall Street “experts” from big-name firms offered their thoughts for what 2023 had in store and most forecasted a negative year for the market. They were wrong as the market finished with a strong year. Consider this another timely reminder that forecasts are meaningless—if not harmful—and that patience and discipline are the real drivers of investing success. (Source: Tker)

2.      CRISIS AFTER CRISIS AVERTED: Perhaps the only thing more notable than the ‘unexpected’ market return in 2023 was the wall of worry that the market climbed to attain such a return. In 2023, we endured a banking crisis, the supposed demise of the U.S. dollar, and a debt downgrade. This is in addition to the countless other mini-crises created by the doom-and-gloom media. All this, and yet, the market soared.

3.      THE RECESSION NEVER MATERIALIZED: Beyond the crises noted above, there were constant calls for a recession with forecasted real growth of negative 0.1% for the year. Not only was there no recession, but real (after inflation) GDP growth is estimated to have been a positive 2.6%, emphatically defying doomer recession predictions. Incredible. (Source: Bureau of Economic Analysis via White House)

4.      SOFT LANDING ACHIEVED FOR NOW: It appears that the Fed may have successfully pulled off the impossible: Inflation is getting under control without crushing the economy or the stock market. As it stands today, inflation is nearing historical norms, unemployment remains below 4%, and the market is near all-time highs again. Almost nobody thought this could happen, and it did. (Sources: Inflation: Bureau of Labor Statistics, Unemployment: St. Louis Fed, Market: MarketWatch)

5.      BONDS ARE SOMETIMES VOLATILE TOO: From 2001-2021, bonds averaged about ten days per year in which prices moved by 0.5% or more. But in 2022 and 2023, bonds averaged about 66(!) days per year in which prices moved by that amount. Accompanying that volatility has been significant losses in bonds as the Fed aggressively raised rates. The good news today though is that bonds appear much better positioned to provide the stability they’re known for now that the Fed has indicated the end of this rate-hiking cycle. (Sources: Bond Volatility: Blackrock, Bond Returns: First Trust) 

6.      DIVIDENDS HIT A NEW RECORD (AGAIN): Even as equity and bond prices have been volatile over the past few years, S&P dividends have been a bright spot of consistency, rising by 4% to another new record of $588.2 billion paid in 2023. And since cash on corporate balance sheets continues to accumulate, companies appear poised to pay another record dividend in 2024. (Sources: Dividends: S&P Dow Jones via PR Newswire, Cash: St. Louis Fed)

7.      MANUFACTURING HAS RETURNED IN A BIG WAY: A renaissance looks to be underway in manufacturing today with massive investments being made by American companies. In fact, “In 2023 Q3, real (inflation-adjusted) private manufacturing construction investment reached its highest level on record since 1958.” This seems likely to generate new jobs, competitive wages, and, hopefully, additional profits for shareholders like us. (Source: Council of Economic Advisors via White House)

The State of the Consumer:

8.      MOST AMERICANS ARE BETTER OFF TODAY THAN THEY WERE PRE-PANDEMIC: Despite the general negativity around the office water cooler and from the media at large, the majority of Americans are better off today than they were pre-pandemic—and this is true across most demographics. Millions of good jobs are paying higher wages (even adjusting for inflation), consumers have returned to spending near the pre-pandemic trendline, net worth is growing, and consumer debt is low. The distortion between reality and broad perception mirrors the pandemic perspective of “Everything is terrible, but I’m fine.” The truth is that the majority of people are doing better than fine. (Source: Stay at Home Macro)

9.      WORKER SATISFACTION AT A MULTI-DECADE HIGH: Perhaps one place we can see the benefit of solid financial footing across consumers is that worker satisfaction has notably increased over the past few years. In fact, more than 62% of workers say they are satisfied at work, which is a 35-year high! For all the rumors of “quiet-quitting,” workers are pretty content. (Source: Axios)

AWE Buzz:

10. ARTIFICIAL INTELLIGENCE (AI) IS CHANGING THE WORLD: While we may be wise not to get carried away with AWE from an investing standpoint, it is changing the world. As just a few examples from 2023, AWE “transformed coding, revealed a new class of antibiotics, and predicted the structure of 400,000 possible new materials needed for next-gen batteries, solar cells and computing.” I’m sure we’re just scratching the surface of what’s happened and what’s possible. (Source: Axios)

With insights from the bullet points above, we think it’s easy to see that 2023 was a pretty solid year and that there is much to be positive about.

That said—nothing can tell us what will happen next in the market. This is an enduring truth. Nobody knows.

But in the next breath, we can tell you that we believe the future is incredibly bright. Not because of anything specific noted above but because we are all pursuing a brighter tomorrow for ourselves and our families. With that being the case across almost all of humanity, how could our collective future be anything other than bright over the long run? We think that’s a great rhetorical question to bring the long-term perspective into the present when reading the scary headlines we’ll inevitably see in 2024.

We hope you find this review encouraging and helpful as we work together toward your goals. As always, please reach out with any questions or concerns you may have. It is our pleasure to serve you.

Stay the course.