Don't Pop the Champagne Just Yet: Why the Stock Market Rally Might Fizz Out in 2024 | Affinity Capital

December 27, 2023

The rise of the stock market in 2023, fueled by hopes of a soft economic landing and tamed inflation, has investors dreaming of champagne toasts in 2024. But amidst the celebrations, a drumbeat of caution is brewing: can a sunny economic outlook guarantee a cloudless sky for Wall Street? While a continued rally isn't out of the question, several looming factors suggest the party might end sooner than some expect. Affinity Capital has been overly cautious with your hard-earned money in 2023 as the issues we have outlined below have been brewing all year. The majority of gains in 2023 were, for the most part, led by thin leadership in some of the largest stocks. This is not a sign of a healthy market.

1. The Fed's Tap Dance: From Hawk to Dove and Back Again?

The Federal Reserve's pivot away from its aggressive rate hikes was the main oxygen for the 2023 rally. But the dance isn't over yet. While “slowing inflation” might prompt lower rates in 2024, the central bank isn't known for its tango prowess. If inflation proves more stubborn than anticipated, another hawkish turn could send shockwaves through the market, especially in interest-rate sensitive sectors like tech and growth. Keep in mind, a slowing rate of inflation does not mean prices are falling – it means that inflation is still rising but at a slower rate!

2. Earnings: Will the Music Stop?

Corporate earnings, the bedrock of stock prices, have largely held up despite economic headwinds. However, the question is whether they can keep the beat in a slower growth environment. Rising costs and potential wage pressures could squeeze profit margins, putting downward pressure on stock prices even if the economy keeps its head above water. A note about corporate earnings and Wall Street: When

a company “beats” or “misses” their quarterly earnings – It is based on the averages of dozens of analyst forecasts which are constantly updated throughout the quarter and year.  The reaction of buyers and sellers to the headline earnings reports may not always indicate the whole story. On average 90% of the 500 stocks in the S&P 500 have BUY ratings. Keep in mind, Wall Street firms are marketing their products and services to these same companies they are analyzing.   

3. Geopolitical Jitters: A Wild Card on the Table

The world stage remains a tinderbox, with ongoing conflicts in Ukraine and the Mid-East, tensions simmering on other fronts. A major escalation or economic shockwave emanating from geopolitics could trigger risk aversion and send investors scurrying for safe havens, leaving equities in the dust. This is especially true with Iran and their proxies in Lebanon, Iraq and Yemen.

4. The Debt Dance: A Burden We Can't Ignore

Soaring national debt, both in the US and globally, casts a long shadow over economic stability. With interest rates on the rise, servicing this debt becomes more expensive, potentially diverting resources away from productive investments and impacting corporate and consumer finances. A debt crisis, though unlikely in the immediate future, could be a major spoiler for any sustained market rally. Federal spending jumped from $4.45 trillion in 2019 to $6.21 trillion in 2023, according to the Congressional Budget Office. That is a 40 percent increase in four years. The proposed 2024 national budget is 9.5 percent higher than 2023 with an estimated deficit of $1.84 trillion. We must return to pre-COVID budgets based on actual revenue and curtail spending. The proposed budgets through 2033 show well over a $1.50 trillion deficit each year! The bond markets have been flashing a warning signal for over a year with annualized interest rate returns for U.S. Treasury Bills of less than one month delivering more than those of 30-year Bonds.

5. Valuations: Back to Reality Check?

While not as lofty as during the pandemic frenzy, current valuations still leave some room for concern. A 25% gain in 2023 has baked in optimism about the future, and any missteps on the economic or corporate earnings front could lead to a sharp correction, bringing valuations closer to long-term averages.

So, what does this all mean?

Investing is not a linear journey, and 2024 promises to be anything but predictable. While the recent economic improvements are cause for cautious optimism, investors should keep their champagne on ice for now. A soft landing for the economy doesn't automatically translate to a smooth ride for the stock market. Vigilant monitoring of key factors like the Fed's stance, corporate earnings, and geopolitical risks will be crucial for navigating the year ahead. Remember, staying grounded in fundamentals and embracing a healthy dose of skepticism will serve you well, whether the market celebrates or sulks in 2024.

In conclusion, the stock market rally of 2023 might not be the harbinger of a prolonged bull run. Several potential roadblocks lie ahead, each with the power to disrupt the party. While cautiously optimistic for the economy, investors should approach 2024 with a clear head and a diversified portfolio, ready to weather whatever the market throws their way.

We remain committed to helping you achieve your investment objectives. Please do not hesitate to reach out with any questions or concerns. We welcome your feedback and are always available to visit. Thank you for the opportunity to serve you and your family and to collaborate with you for—Wealth Management for Life!

 

 

Signals from the Fed: Inflation, Growth, and What Comes Next

August 22, 2025
It was a Fed-heavy week, with three major developments that matter for markets and the economy. FOMC minutes (July 29–30) — released Wednesday (Aug. 20). The minutes reinforced a data-dependent stance : participants saw continued progress on inflation but noted that risks aren’t one-way, citing pockets of labor-market cooling and the growth impact of tighter financial conditions. Policymakers emphasized flexibility and the need to see inflation moving durably toward 2% before declaring victory. For investors, the takeaway is that the bar for rapid policy shifts remains high, but the Committee is clearly keeping both sides of the mandate in view. Weekly balance sheet (H.4.1) — released Thursday (Aug. 21). The Fed’s weekly statement showed the usual moving pieces: securities holdings, reserve balances, and program usage. While week-to-week changes can be noisy, the release remains a useful pulse on system liquidity and the runoff of the Fed’s portfolio under quantitative tightening . Markets watch aggregate reserves and Treasury General Account flows because they can nudge front-end rates and funding conditions at the margin. Jackson Hole — Chair Powell’s Friday address. At the Kansas City Fed’s annual symposium, Chair Powell underscored that policy decisions will continue to be guided by incoming data . He highlighted the balance between sustaining expansion and finishing the job on inflation , noting tariff-related price pressures and supply-chain considerations among factors being monitored. The message: no preset path, but openness to adjust as evidence accumulates. Historically, Jackson Hole is more about long-term framework and risk management than near-term moves, and that tone held this year. What it means for the days ahead Near-term market drivers will be how inflation and labor data align with the Fed’s “proceed carefully” posture. • If inflation continues to edge lower while growth holds steady, the door stays open to gradual policy easing later this year. • If price pressures re-accelerate—or if hiring slows more sharply than expected—the Fed may extend its wait-and-see approach. Liquidity dynamics from the Fed’s balance sheet runoff will remain a background factor , but the central story is still inflation’s glide path and the durability of demand . Investors should expect choppy trading around key data releases , with markets pricing probabilities rather than certainties. As always, we welcome your questions and are here to support you . At the heart of everything we do is our commitment to “ Wealth Management for Life ”—providing enduring guidance for you and your family’s financial success.

Fed Moves and Market Trends | Affinity Capital

August 6, 2025
Markets entered the week with a boost of optimism, fueled by softer labor data and growing chatter that the Federal Reserve might be leaning toward a rate cut this fall. But that optimism didn’t last long . As the week unfolded, economic uncertainty returned to center stage: fresh concerns about tariffs, underwhelming corporate earnings in some sectors, and signs of consumer fatigue in key parts of the economy tempered the early enthusiasm.

Weekly Market Update: Stability Amid Data and Tariff Jitters | Affinity Capital

July 17, 2025
This week’s stock markets were marked by tight trading ranges, record-setting highs in tech, and a backdrop of macro uncertainty. The S&P 500 (through SPY), Nasdaq (QQQ), and Dow (DIA) eked out modest gains, shrugging off headline volatility tied to Fed independence concerns and escalating tariff threats.