Putting a Bow on 2023

December 2023



Hello, I'm Charles Boettcher, Managing Director and Senior Portfolio Manager at City National Rochdale. Welcome to the final Market Perspectives of 2023.

Those expecting the Fed to play Grinch were disappointed last week. Much to the market's delight, the Fed surprised with what some are calling a Dovish Pivot at the post meeting press conference.

Citing recent improvements in labor market normalization, continuing improvements on goods inflation, and a downtick in consumer near-term inflation expectations, Chairman Powell was very optimistic that the Fed is coming close to mission accomplished.

CNR is not quite in that camp yet.

Chart 1: 0:49 — Recent slowing in economic growth is expected to continue in the first half of 2024, but remain solid.

Consumer spending is expected to slow, although the strong labor market and wealth effect should mitigate the contraction.

By the time we get to the late January Fed meeting, it will have been six months since the last rate hike. If we say the tightening cycle is over, it doesn't necessarily mean the easing cycle is commencing.

Inflationary pressures are still high, And the recent decline in bond yields and oil prices are stimulative to economic growth.

But on a positive note, if the declines hold, then the chance of a soft-landing increases.

We do not anticipate any further rate hikes, but we do see and expect two cuts in the second half of 2024. In other words, we expect rates to stay at or close to the current levels for the first half of the new year.

Shifting to the markets, the dovish Fed comments turbo-charged the recent rally in both stocks and bonds. Yields fell sharply as the 10-year dipped below 4% for the first time since July. Recall briefly, it briefly touched 5% just a little more than a month ago, and the broad bond indices have given the stock market a run for its money since mid-October.

Speaking of stocks, the rally in U.S. equities reached 7 consecutive weeks, the longest such streak since 2017. Both the S&P500 and NASDAQ reach 52-week highs.

Continuing the recent broadening out of market gains, the S&P500 equal weight index outpaced its market weighted counterpart by over 1%, while the surge in the Russell 2000 lifted the index out of bear mark territory for the first time in over 20 months. We welcome this long-awaited market breadth improvement.

So, we're wrapping up the year on positive notes.

For the most part, it's been a pretty good year. Things we got right include: We anticipated higher for longer interest rates. We over weighted U.S. equities relative to non-U.S. We underweighted mid and small cap equities relative to large cap, and we anticipated the bounce back in high yield and municipal bonds.

Things we got wrong included: We underestimated the resiliency of the U.S. consumer, the timing of the U.S. recession, the relative weakness of income equities, and the impact of AI and tech stocks on S&P500 returns.

Peeking into next year, here are some of the potential next steps given various scenarios.

If a soft-landing is achieved, if we avoid a recession, and market breadth continues to improve, we may consider diversifying to areas beyond U.S. large cap stocks.

Chart 2: 3:22 — Moving to the bottom of this page, if the current downward glide path for inflation continues, we will want to focus on extending out fixed income allocations, especially for investors currently positioning cash and or short-term bonds who do not need the liquidity short term.

There will be more come when we meet in the new year. For now, Happy Holidays and Happy New Year from all of us at City National Rochdale. I'm Charles Boettcher with Market Perspectives, take care.

Important Information


The views expressed represent the opinions of City National Rochdale, LLC (CNR) which are subject to change and are not intended as a forecast or guarantee of future results. Stated information is provided for informational purposes only, and should not be perceived as personalized investment, financial, legal or tax advice or a recommendation for any security. It is derived from proprietary and non-proprietary sources which have not been independently verified for accuracy or completeness.


While CNR believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and management's view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions which may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements.


Past performance or performance based upon assumptions is no guarantee of future results.


All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market.


City National Rochdale, LLC, is an SEC-registered investment adviser and wholly owned subsidiary of City National Bank. Registration as an investment adviser does not imply any level of skill or expertise. City National Bank and City National Rochdale are subsidiaries of Royal Bank of Canada.


Index Definitions


S&P 500 Index: The Standard & Poor's 500 Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.


The Russell 2000® Index: is a market capitalization-weighted index measuring the performance of the small-cap segment of the US equity universe and includes the smallest 2,000 companies in the Russell 3000® Index.


Nasdaq Composite: is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange. Along with the Dow Jones Industrial Average and S&P 500, it is one of the three most-followed stock market indices in the United States.

Put our insights to work for you.

If you have a client with more than $1 million in investable assets and want to find out about the benefits of our intelligently personalized portfolio management, speak with an investment consultant near you today.

If you’re a high-net-worth client who's interested in adding an experienced investment manager to your financial team, learn more about working with us here.