Market review Q423

Market review Q423

The fourth quarter was a blowout quarter for stocks and the conventional 60/40 (stocks/bonds) strategy. These returns salvaged what had been an unexceptional year for 60/40 and turned it into one of the best in its history. The fourth quarter spurt also improved the S&P 500 annual returns from good to terrific.

So, was the fourth quarter a portent of better things to come - or, was it an anomaly that is likely to revert? Let's take a look.

Inflation, version 1

The consensus view of the fourth quarter is that inflation has finally been defeated. The "transitory" characterization may have taken a little longer to unfold than initially expected, but eventually proved to be accurate.

As supply chains mended after the pandemic, so too did inflationary pressures moderate. Further, while economic weakness has also taken longer than expected to manifest, it too is becoming increasingly apparent. Bankruptcies are rising. Consumer credit is spiking. Job growth is slowing down. It is all summed up with the continued decline in core consumer price inflation.