I reread my Editor’s Note from January 2023 while thinking about what to write for this issue’s opening remarks. One of things I wrote was, “Current expectations call for the Federal Reserve to pause its current rate hike cycle during the first half of 2023, according to the CME’s FedWatch Tool.”

As it turns out, the futures market wasn’t too far off with its forecast. The 25-basis-point (0.25%) hike announced on July 27, 2023, was the last increase of the current tightening cycle. The Federal Open Market Committee (FOMC) has since held its target for the federal funds rate steady.

So, what do traders expect to happen this year? As we went to press a few days before Christmas, the FedWatch Tool was signaling 89% probability of the Fed’s target rate being between 3.50% and 4.25% following its meeting on December 18, 2024. This is a large range. It suggests that between five and eight quarter-point cuts (0.25%) would be made at this year’s FOMC meetings, or a combination of some quarter-point and half-point (0.50%) cuts.

These odds are very much subject to change. What the Fed does will depend on both what happens with inflation and what happens with the economy. Everyone is hoping for the elusive economic soft landing to occur. Unfortunately, the track record of the U.S. economy avoiding a recession or a significant economic slowdown following an interest rate tightening cycle isn’t good. Fingers crossed.

This year, of course, is an election year. Election years tend to be good for stocks. Hopefully, we’ll get more participation in any continuance of the current bull market. Last year’s gains in the S&P 500 index were driven by the so-called Magnificent Seven large technology-related stocks.

Tech overall rebounded strongly in 2023 following a very lousy 2022. We saw this in the returns of many technology mutual funds and exchange-traded funds (ETFs). If you are interested in such funds, I encourage you to read Cynthia McLaughlin’s article. As you will see, there are significant differences between the various technology funds. Just as you shouldn’t judge a book by its cover, never judge an ETF by its name alone.

Back to the issue of participation, it wasn’t great last year. Through December 19, 2023, the S&P 500 rebounded by 24.2%. The S&P 500 Equal Weight index was up 11.2%. Same stocks, just different weightings. Put another way, the majority of stocks within the S&P 500 failed to keep pace with the index itself.

Still, you did not need to be in the Magnificent Seven to outperform. As John Bajkowski notes, 12 AAII Stock Screens outperformed the S&P 500 in 2023. Leading them was the Templeton screen, one of our guru screens. Among the traits it seeks out is a price-earnings (P/E) ratio below a stock’s five-year average. This relative value approach allowed Chipotle Mexican Grill Inc. (CMG) to pass the screen for most of 2023.

Among our factor screens, the Value on the Move PEG With Estimated Growth strategy was the 2023 leader. It seeks out stocks trading at discounted valuations relative to their projected earnings growth. United Rentals Inc. (URI), a stock held in the VMQ Stocks model portfolio, was one of the stocks passing this screen in December.

Both Chipotle and United Rentals have realized strong gains in 2023. Neither are like the Magnificent Seven stocks. I mention them because they are examples of how stock screens can lead you to stocks that may not be at the forefront of the headlines. Stock screens can also lead you to stocks you’ve never heard of with key traits you desire.

All AAII members have access to our 55 stock screens. I encourage you to use them if you’re going to actively invest in stocks. Our annual review of those AAII Stock Screens starts here.

Since each new year brings about resolutions, we have two articles for kicking off the year right. First, I offer suggestions for creating a one-page wealth-building plan for assets you plan to bequeath to your heirs. Second, Anine Sus discusses allocation and how to fill your portfolio in her latest installment of our Beginning Investor series.

On behalf of everyone at AAII, I wish you a happy, healthy and prosperous 2024,