The Federal Reserve is seemingly edging closer to what many thought was unthinkable: a soft landing of the US economy after raising interest rates to unseen levels to tackle inflation.
A year ago, many worried that the Fed's aggressive rate increases would lead to a recession. But, as 2023 comes to a close, the S&P 500 is hitting record highs, and the bond market is slightly positive year to date.
While this scenario is what everyone hoped for, many didn't see it as a likely option given the unprecedented stimulus money pumped into the economy during the COVID era. However, inflation is now hovering around 3%, which is three times less than its 2022 peak.
For the upcoming year, interest rates will decrease through a series of Fed rate cuts; this should help the economy sustain growth and take (some) pressure off home buyers and small businesses.
While a recession could still occur, it seems likely that the US economy will continue to experience an expansion that will send stock valuations up. In particular, small-cap value and real estate companies generally prosper during periods of declining and lower interest rates.
Concurrently, bond valuations should increase, too, given the inverse relationship between bond prices and interest rates.
As a result, now is a great time to rebalance your portfolio to lock in gains while ensuring that your risk exposure doesn't become out of balance, given the strong performance of equities this year. Furthermore, interest rates have now crested, and locking in bond or CD rates before they go down is a smart money move.
If you need help evaluating how to rebalance or restructure your portfolio going into 2024, Lundeen Abrams Advisors is here to help. Our small team provides hands-on, tailored service to meet your unique situation and needs. So please reach out to us to set up a time to talk today.
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