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2023: The Year in Review

Every January, it’s customary to look back on the year that was. What were the highlights? What were the “lowlights”? What events will we remember? Most importantly, what did we learn?

As you know, many noteworthy and historic events happened in 2023. Conflicts in Gaza, Ukraine, and Sudan. India surpassed China as the most populous country in the world. New temperature records were set all around the globe. The use of “artificial intelligence” exploded and turned multiple industries on their heads. Chinese spy balloons and deep-sea submarines grabbed the headlines. The “Barbenheimer” phenomenon reinvigorated Hollywood.

But in some ways, one of the most notable occurrences of 2023 is actually what didn’t happen: We never entered a recession. 

When 2023 began, the fear of a recession was so widespread that it almost seemed inevitable. According to one survey, 70% of economists expected a recession to hit the U.S. in 2023.1 Another survey found 58% of economists believed there was a more than 50% chance of a recession.1 For politicians, pundits, and analysts, it was practically all they could talk about. 

But it never happened. Instead, the economy grew by 2.2% in the first quarter, 2.1% in the second, and 4.9% in the third.2 (As of this writing, the numbers for Q4 are not yet available, but it’s expected to go up again.) None of this is to say that our economy is perfect or that we won’t have a recession in the future. But for 2023, all the gloomy forecasts simply didn’t come to pass.

Now, let’s be fair to all those economists who got it wrong: They had very good reasons for expecting a recession. Reasons based on data, logic, and history.

You see, when the year began, the U.S. was coming off a nasty 2022. While consumer prices were already coming down from their earlier highs, the national inflation rate was still 6.5%.3 Interest rates, meanwhile, had risen dramatically, from just above 0% at the beginning of 2022 to over 4% by the end.4 It was already the highest level we’d seen in fifteen years – just before the Great Recession, in fact – and every indication was that rates would continue to rise higher. All this economic pain was reflected in the stock market. The S&P 500, for example, dropped over 19% in 2022.

For economists, all this data seemed to point a clear way forward. The Federal Reserve is mandated to keep consumer prices as stable as possible. (Its target has long been to hold inflation to around 2%.) When inflation runs hot, the Fed’s main tool for lowering it is to raise interest rates. Higher rates often lead to lower consumer spending. Lower spending, in turn, prompts businesses to decrease the cost of the goods and services they provide. Essentially, higher rates create an environment where supply is greater than demand, thus cooling inflation.

But there’s a side effect to this. If spending drops too much, businesses are often forced to cut back on expansion, investment, and labor costs. This leads to a rise in unemployment…and a contracting economy. In short, a recession.

This string of events isn’t just logical. It’s supported by history. When inflation has skyrocketed in the past, the Fed’s playbook has usually worked to bring prices down…but it’s usually triggered a recession, too. Economists call this a “hard landing.” 

A soft landing is when prices come down, but the economy does not. It’s no surprise that most economists predicted a hard landing in 2023.

One year later, that hasn’t happened. Interest rates did continue to rise. As of this writing, they’re at 5.3%.4 Inflation has continued to cool, albeit slowly. As of November, the inflation rate was 3.1%. That’s a 3.4% drop from the beginning of the year.3 But consumer spending has remained steady. The labor market has remained strong. The unemployment rate was only 3.7% as of November.6 And, as we’ve already covered, the economy has continued to grow.

From a financial standpoint, this, to me, is the major storyline of 2023. Which means we have to ask ourselves: “What can we learn from it?” As your financial advisors, we’ve taken the time to jot down a few lessons we think are worth remembering as we move into the New Year. Here they are:

  1. Always emphasize preparation over prediction. The economists who predicted a recession weren’t stupid. They used the best data they had to make the best predictions they could. But 2023 shows that even the most well-informed people simply can’t see the future. Even the near future! There are simply too many variables to consider. That’s why, as investors, we emphasize planning over predicting. We can’t predict when the markets will drop nearly 20%, as they did in 2022.5 Or, when they’ll rise by well over 20%, as they did in 2023.5 What we can do is plan ahead for what we’ll do if the markets fall, or if they rise. We can prepare mentally and financially for both market storms and market sunshine. So that we can weather the former and take advantage of the latter. When we predict, we’re essentially swinging for the fences on every pitch. Occasionally, a prediction can lead to a home run…but it can also lead to a lot of strikeouts. By planning, we don’t have to swing at all. Since we can’t control the situation, we simply make the best out of every situation. We control only what we can control – ourselves.
  2. Be wary of confirmation bias. Earlier in the year, we spoke to many people who were convinced a recession would happen. Because of that, they tended to disregard all data that pointed away from a recession, and only valued information that confirmed what they already believed. As a result, many investors missed out on a stellar year in the markets! This is another example of why preparing is so much better than predicting. It removes emotion from our decision-making. Because we’re not so focused on “being right,” we can focus instead on “being ready!” 
  3. Remember that past performance is no guarantee of future results. You’ve probably seen this line in the past, and 2023 is a great example of why. Just because rising interest rates have led to recessions in the past doesn’t mean they always will. Just because the markets went one direction yesterday doesn’t mean they’ll go the same direction tomorrow. While history is a great resource to draw from when making decisions, it’s just a guide, not a guarantee.
  4. At the same time, don’t anchor to the present. As humans, we have a natural tendency to think that the way things are today is how they’ll be tomorrow. When 2022 ended, many investors felt that 2023 would be much the same. Now, we run the risk of thinking that just because a recession didn’t happen last year, it won’t happen this year.

Again, it all goes back to planning and preparation. We will continue to prepare for all possible outcomes. We’ll plan for how to reach the outcomes we want and avoid the ones we don’t. But instead of predicting and assuming, we will accept that the future is written in clay, not stone. Only when it becomes the past does it harden. So, when you get right down to it, the lesson of 2023 is this: The future is flexible, and so we must be flexible. By doing this, we can continue shaping your future into whatever it is you want it to be!

EXCITING NEWS IN 2023

2023 was a big year for the Peters Financial team! We celebrated new babies, new marriages, and more babies on the way!

Lee and Annie Peters welcomed their first baby, George Mitchell Peters II, on December 12, 2023. He weighed 6 pounds and 11 ounces and was 20 inches long. George is named after Lee’s great-grandfather and great-great-grandfather. George is Pete and Mimi’s first grandson, and he is already adored by his three cousins – Mary Louise, Cecilia Anne, and Rose Marie. Lee and Annie are over the moon and loving life as a new family of three!                                         

We celebrated the marriage of our Operational and Marketing Specialist, Payton Collins Harvey, on December 9, 2023! Payton and her husband, Matthew Harvey, had their wedding at the historic Bragg-Mitchell Mansion in Mobile. It was a beautiful ceremony, followed by a fun evening celebrating the newlyweds. We wish Payton and Matthew many wonderful years of marriage ahead!

Our Client Services Associate, Taylor Sprinkle Fuller, married Austin Fuller on June 22, 2023, and they are expecting their first baby! Wyatt Aubrey Fuller is due this February. Taylor and Austin are so excited for baby Wyatt’s arrival, and we could not be happier for their growing family!

We also would like to congratulate Lee on being selected for this year’s 40 Under 40 Class for Mobile Bay Magazine!   This honor recognizes professionals younger than 40 who demonstrate leadership, professional excellence, and a commitment to the Alabama Gulf Coast community.

2023 was a year we won’t forget! We have so much to be thankful for and so many blessings. We hope you and your family have an amazing year ahead in 2024! Thank you for allowing us to be a part of your financial journey. We are honored to serve you again this year. 


Sources:

1 “Top US economists are often wrong – should we trust their predictions?” The Guardian, www.theguardian.com/business/2023/nov/19/us-economists-wrong-predictions

2 “Annualized growth of real GDP in the United States,” Statista, www.statista.com/statistics/188185/percent-change-from-preceding-period-in-real-gdp-in-the-us/

3 “United States Inflation Rate,” Trading Economics, https://tradingeconomics.com/united-states/inflation-cpi

4 “Federal Funds Effective Rate,” St. Louis Fed, https://fred.stlouisfed.org/series/FEDFUNDS

5 “S&P 500 Historical Annual Returns,” Macrotrends, https://www.macrotrends.net/2526/sp-500-historical-annual-returns

6 “Unemployment Rate,” St. Louis Fed, https://fred.stlouisfed.org/series/UNRATE

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