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Economic Outlook

By: Russ Colbert
Winter 2024 (Vol. 41, No. 4)

This past year, in 2023 we saw the economy remain resilient and the stock and bond markets rallied to finish strong for the year. So far, Chairman Powell and the Federal Reserve have engineered a path for a safe landing without a recession. If the economy continues to grow and a soft landing is achieved, then the economy and stock market should continue to improve and therefore we should be optimistic about the future. Things have gotten much better, but we may not be clear of some volatile times ahead which could still lead to a mild recession during 2024.

We need to keep an eye on some areas of concern. One being commercial and industrial loans. Even though they have declined lately, they have been temporarily and artificially supported by government subsidies during the past couple of years. Also, payrolls have grown very fast in the past year even with an unusually low employment rate, suggesting over hiring by businesses. We are also starting to notice that consumer spending looks as though it may start to slow. Government payouts, rent and student loan moratoriums, and temporary tax cuts during Covid led to extra savings for many consumers which are likely to start running out in 2024.

What will happen with the inflation picture? We believe it will continue to head down, toward the 2.0% Federal Reserve target. The Federal Reserve is likely to continue to cut interest rates. It is possible we will see several rate cuts before the election. This should be good news for the stock market, causing it to rise. Investors will need to be more selective in what they purchase.

Overall we believe 2024 will bring continued decline of inflation in our goods and services. We think the Federal Reserve will continue to cut interest rates several times as mentioned above before the election unless there is a spike upward in inflation. We don’t anticipate that currently. We see continued revenue growth in many businesses this year. With an election around the corner, our politicians will try to keep things running smoothly so many of them will be re-elected. So, unless something pops out of the woodwork, we should have a decent year.

Looking ahead at the election later this year, we anticipate a return of Biden versus Trump for the Presidency. At this point we think Trump is a slight favorite but will face a constant challenge given how much the electorate dislikes him. The House of Representatives might have an edge to go to the party that wins the White House. The Senate might be easier to call, with the GOP in a good position many believe to win for fundamental reasons. At present the GOP has 49 seats. The Republicans don’t have to defend any seats in blue (Democratic) states. But, in my opinion, there is so much time left before the election that anything is possible. Who really knows for sure, I am certainly no expert in this area and I get my advice from Political advisors and periodicals that are sometimes off the mark. So, there you go, only time will tell, and often over time there are many changes. So much for politics! We will have to wait and see how things shape up between now and then. The election will have a major influence on what happens to the Trump tax cuts originally enacted in 2017 and are set to expire at the end of 2025. So, we will have to wait and see.

If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.

Russ Colbert
Senior Portfolio Manager

Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.