Fourth Quarter 2023 Review

At the outset of 2023, nearly every economist believed the U.S. economy was headed for a recession. When interest rates rise as quickly as they did in 2022—and the yield curve remains inverted for such a long stretch of time—a recession is what everyone should expect. Yield curve inversions have preceded the last eight recessions. For many market participants, the U.S. economy was spiraling towards 1970s-style stagflation.

 Equity markets told a different story. With the benefit of hindsight, we can now frame last year’s powerful rally as ongoing confirmation that the U.S. economy could, in fact, experience declining inflation without a broad-based recession and/or a spike in unemployment (hard landing).