Are Things Now Almost Too Good?
Things to watch out for in 2024
To begin 2024, both the economy and stock market continue to overflow with positives news.
The stock market is pushing up against new all-time highs
Unemployment remains historically low
Consumer spending continues to drive economic growth
A recession looks to have been avoided
Inflation has fallen
Wages have grown
All investment asset classes and categories worked in 2023
Even cash is returning 5%.
Home prices have remained stable and even continued to rise in the rising interest rate environment.
401K and retirement account balances look great.
The list could go on, and yes there are some negatives out there. But they pale in comparison to all the good news.
It has been a few years since we’ve had this smooth of an economic and investing road. There is so much going right that it makes you really wonder, is it almost too good?
These periods are when you want things just to freeze as is and continue.
But we know that isn’t realistic and during these moments is when you start to think, ok something has to break or go wrong. Things are almost going too good.
What is it that could possibly derail this smooth path in 2024? This survey from Investopedia shares what people are concerned with over the next 12 months.
These all are very reasonable concerns.
One area that I have been watching is what’s going on with housing and residential construction.
With the Fed forecasted to start decreasing interest rates in March, I worry a little how that affects housing and possibly the broader economy.
A few items that have stuck out to me the past few weeks.
Apollo’s Torsten Slock made a great point on the prospects of a housing rebound due to the Fed pivoting to lower rates and then mortgage rates falling.
If the Fed pivot continues to push mortgage rates lower, stock prices higher, and credit spreads tighter, we could get a solid rebound in the economy over the coming months, particularly in housing, which will trigger a rebound in employment growth.
I’ve personally wondered if housing has already begun to rebound. I’m noticing a drastic uptick in building and construction related work.
Warren Pies shared a residential construction employment payrolls chart and it is taking off to a new high.
This might just coincide with the fall in mortgage rates which we’ve seen.
But as Lance Lambert points out, the homebuilder stocks are also telling us something. Look at the shift from December 2019 to December 2023 in homebuilder stocks breaking out to all-time highs.
The rebound in housing would be a welcome for the already hot economy. Buyers who’ve been on the sidelines waiting for affordability to improve would jump for joy.
That has now started as the median monthly mortgage payment has hit the lowest level since February; from Mike Zaccardi via Redfin.
Median monthly mortgage payment: $2,361 at a 6.61% mortgage rate. Down $372 (-14%) from all-time high set during the four weeks ending Oct. 22. Lowest level since Feb.
The worry from this is if interest rates fall, that could spark a reheating of the housing market. The demand for homes has not dried up.
If the housing theme returns and it does take off again in 2024, it could also re-ignite inflation. The overheating could return as consumers are still employed and have money. Consumer spending is influenced by three areas for consumers; employment, stocks/investments and housing.
I think right now, an inflation re-ignition is almost more likely than a recession. If we see inflation move higher, it could cause the Fed to hold rates higher for longer or pivot back to raising rates.
This is what I’m watching as we begin 2024 as a possible pothole to this smooth road we’re on. I hope the Fed can maintain this soft landing and both this economic and stock market rally continues. But one never knows what the future may hold. It’s all an unknown.
The Coffee Table ☕
There was a very interesting post from The Idea Farm called 75 Facts from 2023. They highlighted some of the most interesting facts from a wide range of things from investing, personal finance, sports, media and more. It also has links for each of the interesting facts if you want to read more. I learned a lot from this list.
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