Over the past year, the economy and financial markets have surpassed most forecasters’ expectations. The U.S. economy grew at an annualized rate of 5% in the third quarter of 2023, with falling inflation, stable employment, and a rise in the S&P 500 stock index.

The majority of data we review improved early in 2023. However, the rate of improvement then stalled, making the year ahead more challenging as higher interest rates impact the economy. Additionally, the equity markets’ narrow leadership and high valuations could make further gains more difficult. Nonetheless, fixed-income investors will find starting yields more appealing today than in previous years.

It is satisfying to see the economy defy the widespread negativity that gripped the markets a year ago. As we step into 2024, we position asset allocation portfolios tactically with a slight tilt toward stocks due to recent data trends.