Moneybeat: Economic ripples from 2023

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

DAVID BAHNSEN: Good morning, Nick. Good to be with you.

EICHER: David, I mentioned your year in review at Dividend Cafe and look ahead to 2024 and that we would hit the highlights this week. So let’s make good on that. I think, though, instead of so much review of the year that was, let’s think about 2023 in terms of what from last year informs this year. Then we’ll move on to the forecast for 2024. Sound good?

BAHNSEN: That sounds great. Yeah. I mean, I think to jump into some of the issues with 2023, you're kind of looking for themes. I mean, we know that the economy did not go into recession, and that in a lot of ways the economy outperformed expectations. We know in markets that ended up being not just a good year, but a huge year. The S&P up 26%. We know that the Fed raised interest rates. And even though they paused in the last several meetings of the year from raising further, they didn't end up cutting rates at all last year. So there was a lot of upside surprise in the economy in the market in 2023. 

But then we also know a few other things. That actually the market because of how down it was in 2022. Even at the end of 23, even being up at 26%, it still wasn't back to where it was at the end of 2021. So, you know, there's a lot of nuance in how things happened in 2023. And that's often the case with markets. But I think when you talk about what's going to be still a theme in 2024, I'll start with what isn't a theme, because this disconnection kind of a theme. 

I think that in 2023, the stock market and a lot of what was going on with the economy, it was really a big, big story about bond yields, the bond market pricing, what it expected from the Fed. And I don't think the Fed is going to be the primary story in 2024. Now, the Fed's going to be a huge story, day to day market volatility, will they, won't they? When will they? All those things will be headline stories and create some extra short term volatility. 

But you know, the markets know, Nick, this year that the Fed is going to be cutting rates. And maybe it ends up four cuts. Maybe it ends up being six cuts. Maybe they start in March. Maybe they started in May. There's a little bit of variability around some of the particulars. But I think 2024 is a year in which the markets sort of know that stuff and 2023 was not. There was that uncertainty that lingered throughout the year.

EICHER: David, you identified eight themes for 2024. I think we’d run out of time trying to do them all. You know the WORLD listener profile pretty well, so as you think of all you’ve written what do you think is near the top “need to know”list for 2024?

BAHNSEN: Yeah, you know, I sort of teased up already, what was our first theme, just a moment ago by saying that the Fed particulars are going to be overrated. But I would suggest that of those eight, there are two other ones that I would really focus on. The first one's easy. And I think it's something that all WORLD listeners are going to be familiar with. But what we said was that the election will be the top news story of 2024. But it will be the fifth place market story. And what we mean by that is, it won't even be, you know, the top four considerations in markets. It’s just going to be impossible for markets to price all of that in. They're not going to know. Most people are aware we're in a very, you know, 50/50 type, divided country. 

The other thing, and I'll try to go through quickly, but I think it is probably not just the most important thing for WORLD listeners. But the important tension that is playing out in the economy. And this is not a stock market story. This is really what I think is going to dictate how the economy does for the next couple of years more than anything else. And it’s this internal tension between two forces that are both playing out all at once. And people are welcome to like both of them. They're welcome to dislike both of them. But they can't deny that both are happening. And one is some movement towards deglobalization that is less intensity and opening new markets globally, doing more business globally. And there is an intense desire to see more manufacturing come back on shore in the United States. 

So deglobalization, we have to remember, even if people like it, even if there's certain benefits to it, or benefits for certain sectors and people, it's still a cost. Right? I mean, we didn't globalize for no reason. There was globalization to the extent that there was. It opened up new markets. It attracted more capital, and attracted more customers. It might have created comparative advantages that decrease cost. And so deglobalization essentially means some increased cost for good or for bad. 

But then you're having that force, Nick, play out against what I would call the productivity boom, potentially a renaissance and capital expenditures. I've talked on the show before that, that construction is way up. We know that there is a big movement to see more semiconductor manufacturing taking place in the United States. 

That is an entire story that I simply don't know how it will play out. Because on one hand, I think there's big economic advantages that could come. But on the other hand, I'm still not convinced they're gonna get the workers they need. It's one thing to attract the jobs. It's another thing to attract the people. And so the deglobalization cost versus the productivity boom, it's, to me, the biggest macro economic story in the world right now.

EICHER: Ok. David Bahnsen founder, managing partner, and chief investment officer of The Bahnsen Group. David’s personal website is Bahnsen.com. His Dividend Cafe each week you can find at dividendcafe.com.

Thank you, David!

BAHNSEN: Thanks so much, Nick. Great to be with you.

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