A look back and a look ahead

- Hello, I'm Vivian Estadt, Client Service Director at SEI. I'm here with Chief Market Strategist and Senior Portfolio Manager, Jim Solloway to provide a quick preview of one of the timely topics he covers in our most recent economic outlook. Jim, investors entered 2023 battered from the sharp decline in bonds and equities. This year has been relatively kinder with some surprises along the way. How did 2023 pan out compared to your view and how optimistic are you about 2024?

- Thanks, Vivian, overall, 2023 saw quite the reversal from the previous year. Equity and bond markets were remarkably resilient against the backdrop of tighter monetary policy and an inflation rate that slowed, but still showed a stubborn persistence in some areas. The chart on the screen shows a stylized depiction of our 2023 and 2024 views on several key economic data points and policy issues. Our original forecast for 2023 made at the end of 2022, are represented by the boxes in the top bars for each category. The actual outcomes are represented by check marks. Global economic growth proved to be stronger than expected. We argued at the start of the year that many developed countries would face economic stagnation and recessionary conditions in 2023, but the US would not necessarily be one of them. It appears that we were mostly on the mark with that forecast, although the US surprised on the upside. Heading into 2024, financial conditions in the US are more consistent with continued economic expansion. Though we expect other major countries to continue on a slow growth or mildly recessionary path, while inflation de-accelerated across most economies, it is far from dead in our opinion. The benign trend observed in recent months is more reflective of normalizing supply chains and the sharp downturn in energy prices in 2023. We maintain the stance that inflation will remain higher for longer than expected.

- The Federal Reserve is targeting a 2% annual inflation rate, and investors seem to believe the Fed can achieve that goal. It sounds like you don't.

- The path of inflation is likely to be the single most important determinant of the market's direction in 2024. That path looks benign at the moment, but we believe it is a mistake to assume that we are heading back to 2% on a sustainable basis. A soft landing of the economy, the widely held view of the day seems inconsistent with inflation falling and staying low for an extended period.

- Thanks, Jim, we always appreciate your insights. SEI is focused on the major issues that are of interest to our clients. We incorporate these discussions into our advisory process as the impact varies based on each client's goals. For more of SEI's insights, read our latest economic outlook available on our website.