Key Insights: Five Investors Reflect on their Top Lessons from 2023

Last year, the markets were incredibly unpredictable, leaving investors wary of being unprepared once again. Although stocks finished on a positive note, they were challenged by the Federal Reserve's interest rate hikes, banking instability, concerns about the debt ceiling, and conflict in the Middle East.

The widely anticipated predictions for 2023, such as a recession and multiple rate cuts, did not materialize. CNN interviewed five investors on the key lessons they have learned and how these have influenced their outlook for 2024.

Dont underestimate the American consumer

Last year, Americans spent money on a wide range of items, including summer vacations and concert tours headlined by popular artists like Taylor Swift and Beyoncé. This spending played a key role in maintaining the strength of the economy and the market, despite the Federal Reserve raising rates to the highest level in 22 years.

According to JPMorgan Asset Management's chief global strategist David Kelly, he anticipates that Americans will keep spending strongly, even as their savings continue to be depleted from the peak of the Covid-19 pandemic. Kelly stated, "American consumers don't cut back willingly, they do so when they have no other option."

History isnt a guide to the future

The inversion of the yield curve in 2022, with the yield on the 10-year US Treasury note falling below that of the 2-year, has historically been a precursor to recessions. Despite many traders and economists interpreting this as a sign of a potential downturn in 2023, it did not materialize.

Dont fight the Fed

"How can we anticipate that this single-factor model will remain valid in a world where we have experienced three or four unprecedented events in the past year?" questioned Yung-Yu Ma, the chief investment officer at BMO Wealth Management. Nevertheless, the possibility of a recession in 2024 cannot be entirely ruled out.

George Cipolloni, a portfolio manager at Penn Mutual Asset Management, is committed to a well-known Wall Street saying regarding the impact of central banks on markets. This adage was particularly relevant in 2023, as investors had expected the Fed to reduce rates multiple times in the second half of the year, despite the central bank's warnings of potential rate increases.

Hot inflation data derailed those expectations. Stocks entered a months-long rout and bond yields spiked. The pain eased after the Fed projected three rate cuts for 2024.

Diversify beyond the Magnificent Seven

According to Leslie Thompson, the chief investment officer at Spectrum Wealth Management, she advises investors not to be driven by the fear of missing out and instead focus on maintaining a diversified portfolio for the long term.

Last year, the tech stocks known as the "Magnificent Seven" - Nvidia, Microsoft, Apple, Amazon, Tesla, Alphabet, and Meta Platforms - received the majority of the market's gains. However, there was also a broader rally at the end of 2023, where assets from small-caps to energy to financials all saw an increase in value.

Thompson expects the rally to continue broadening out and says shes eyeing industrials and dividend-payers.

Fundamentals have to start mattering

The S&P 500 index saw a 24% increase last year, even with a period of declining corporate profits. Despite this, companies in the S&P 500 reported a 4.9% increase in earnings during the third quarter of 2023, marking the end of a series of losses since the fourth quarter of 2022, as per FactSet.

It is anticipated that earnings in the fourth quarter of 2023 will grow by approximately 1%, with big banks set to kick off the earnings season on Friday.

The "Magnificent Seven," trading at around 31 times projected earnings, are becoming increasingly costly, according to Amanda Agati, CFO of PNC Asset Management Group.