December 14, 2023


Stronger than expected job growth and a sharp escalation in Mideast tensions pressured both stocks and long-term bonds in October.  During November, smaller than expected increases in many price indexes raised expectations that the Fed might be ready to cut interest rates in 2024.  This triggered rallies in both stocks and bonds that extended well into December.

Looking at the year overall, one can see strong parallels to the markets’ fourth quarter performance.  Throughout the year, stocks and bonds rose and fell in line with investors’ expectations for what the US Federal Reserve’s next move might be.  In the end, both stocks and bonds registered strong gains for the year as the Fed transitioned from raising rates to pondering when to lower them.  Unsurprisingly, the largest gains accrued to the most interest rate sensitive stocks.  Growth stocks outperformed Value stocks by a wide margin.

Although the markets are likely to continue to be volatile, we remain optimistic about the stock and bond markets’ long-term prospects.  First and foremost, the US economy is strong and likely to remain so. Second, investment valuations outside of the technology sector are attractive.  For further details on each of these points, please see below.


The Economy:

  • US unemployment rate remains low and the economy continues to add new jobs each month – suggesting the labor market remains strong.
  • Consumer spending is robust.
  • Continuing declines in the rate of price inflation have prompted a pivot in Federal Reserve policy – with Fed governors now expecting to lower the Fed Funds rate by 0.75% during 2024.
  • Corporate earnings are expected to grow by 10% or more during 2024.


Investment Valuations:

  • The equity market’s recent rally was driven by a small number of technology stocks.  Many stocks outside this elite group have attractive valuations.  A great environment for active stock managers.
  • Although bonds rallied strongly in the fourth quarter, bond prices remain near their bottom for this cycle.  With the rate of price inflation declining and the Fed poised to begin lowering borrowing costs, it is likely bonds will continue to appreciate.


This report has been generated from information that Arbor Financial believes to be reliable and accurate. We do not represent or warrant the accuracy or completeness of the information contained in this report. As such, all calculations, estimates, and opinions included in this report constitute our best judgment as of this date and may be subject to change.


Written by

Peter has more than 25 years of experience in the financial industry as a researcher, strategist, and portfolio manager.  As a portfolio manager at Arbor, Peter performs quantitative analysis on current and prospective portfolios.

Peter is a CFA charter holder.  He earned his PhD in Economics as well as dual Bachelors of Science degrees in Computer Science and Pure Mathematics from the University of California, Santa Barbara.

Before joining Arbor, Peter was a Founding Member of institutional money manager OakBrook Investments and worked there for 22 years serving in a variety of roles including portfolio manager, Director of Research, and co-Chief Investment Officer.  Prior to forming OakBrook, Peter worked at ANB Investment Management & Trust Company as a strategist, portfolio manager, and Head of Research.

Peter has lived in Lisle, Illinois since 1997.  Outside of work he enjoys sports car racing and is an active member of the Autobahn Country Club in Joliet, Illinois and the Sports Car Club America (SCCA).