In Pathstone’s December 2022 CIO Letter, we forecasted a “bumpy road back to normal.” We believed that despite the severity of the moves seen in 2022, the market and economy were on the road back to a scenario where more persistent returns would emerge.  Nearly a year later, we have certainly seen some bumps (three major bank failures, debt ceiling crises, continued geopolitical tensions), but we also see signs for smoother roads ahead: The Fed has signaled the end of its rate-hiking cycle, the economy has strengthened while inflation has cooled, and equity markets have rebounded. Investors may now be asking, “Are we there yet?”

To address that question, we need to understand what “there” means.

In this edition of our annual year-end letter, Pathstone’s Chief Investment Office examines the state of the markets and economy and offers insights on where we are on our journey and what our destination might be in 2024. Our leaders will address the macro outlook, what a long-term “normal” environment might look like, emerging secular trends poised to break free of the economic cycle, as well current trends and actionable investment ideas across listed and private markets.

In this letter:

• Economic Outlook: Reasons for Optimism
• What Is Normal?
• Investment Themes That Transcend the Cycle
• Listed Markets: Fundamentals Are Back
• Private Markets: Manager and Asset Selection Key
• Closing Remarks: Creating a New Normal at Pathstone

With the current makeup of Congress, we feel confident we will not see another major catalyst for tax policy change until the 2024 general elections. Accordingly, this year-end planning note focuses on current law and provides a framework of considerations and opportunities to explore as part of traditional year-end planning. It is also not too early to start planning for the sunsetting of several provisions of the 2017 Tax Cuts and Jobs Act (TCJA) in 2026.

In our Highlights section below we summarize the key points. To see a fuller explanation for those who want to dive into the details, click download PDF.

As always, please engage your Pathstone advisory team to help assess opportunities and their potential application and appropriateness to your family’s unique planning situation.

Following three months of weak performance, both equity and fixed income markets saw a sharp uptick in November after the Treasury declared that bond issuance would be less than previously projected. The rally persisted when inflation fell below economist forecasts. Throughout the month, Treasury yields decreased due to a combination of factors, leading to the best month of performance for bonds so far this year with only a month to go. Developed ex-US equities were among top performers for the month, while commodities were the worst-performing asset class for the month.