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Investors Welcome the Fed's Holiday Gift

Investors Welcome the Fed's Holiday Gift

| December 31, 2023

Investors are welcoming the Fed's Holiday gift.

Both economically and in the financial markets, 2023 has been a bit of a roller coaster ride.  For most of the year, rising interest rates kept pressure on stocks and most financial assets while surely taking most of the air out of the residential real estate markets.  (Only a lack of supply kept prices firm for single family homes.)

This all changed last week when the Federal Reserve governors held their final meeting of the year.  And while they didn't spell out that interest rate hikes are finished for this cycle, they did telegraph that they expected the next move to be a decline in rates.

Needless to say, stocks reacted with a sizable jump, while yields on US Treasury securities fell.  The 10-year Treasury note, which is often a benchmark for setting mortgage rates, hit 5% earlier this year.  This rate fell below 4%, helping to underpin a rally in financial assets.  And on cue, mortgage rates have begun to decline from the year's peaks.

Somehow, the Fed engineered a feat of bringing inflation substantially down (it's about 3% now, having hit a 9% rate over one year ago) while not harming the labor market.  This doesn't mean that the economy won't weaken from here.  In fact, monetary policy acts with at least a six-month lag, so we won't know for quite a while what damage was done.  The bottom line, though, is that investors believe that the so-called "soft landing" will be achieved.

We'll take this policy shift as a pleasant and welcome Holiday gift from the Fed.  It surely beats the alternative.

As we close out 2023 on this bright note, we'd like to thank each of our friends and clients for their support over the past year.  You really do make this business special.

As we have for more than a decade, we show our appreciation in the form of charitable gifts in your honor.  We continue to support the Atlanta Community Food Bank and Heifer International as our long-term partners while also including gifts to the American Red Cross and other "on the ground" charities working in war torn regions around the world.

So, thank you, and best Holiday wishes to you and yours,

Scott and the Boardwalk Team