January 4, 2024

2023 Year-End Review: Navigating Economic Waves and Embracing Technological Tides

As we bid adieu to 2023, it's only fitting to reflect on a year filled with economic twists and technological turns that have reshaped the landscape for the economy and commercial real estate industry. Here's a glimpse of the key economic factors from the year that will mold what the future will hold.

Inflation Tamed, Rates Tightened: Riding the Economic Rollercoaster

The star performers on the economic and geopolitical stage of 2023 were undoubtedly inflation and the relentless rate-tightening cycle. Navigating these challenges required a delicate dance, and businesses across many sectors felt the impact, particularly in the medical space. Adaptability, however, has always been the cornerstone of success, and as we close the chapter on 2023, it's refreshing to observe a more stabilized interest rate environment.

Federal Reserve's Accommodative Stance: A Beacon of Hope for 2024

Amidst the economic turbulence, the Federal Reserve's most recent meeting provided a glimmer of hope. The Fed Chair, Jerome Powell, provided a roadmap for a shift towards a more accommodative policy, signaling a potential easing of interest rates that borrowers were faced with in 2023. As we step into 2024, this change in tone encourages a sense of optimism, paving the way for a more cooperative and supportive financing landscape. As of this writing, the 10-year treasury rate has settled in at 3.98%, reflecting a resounding 87-basis point improvement since the last quarter. Market sentiment anticipates a 63% likelihood of the first rate cut occurring by March, with odds surpassing 92% by June. The Federal Reserve remains committed to making decisions based on unfolding economic data as it becomes available rather than speculation. Assuming positive trends persist in key indicators such as CPI, jobs, and inflation, and unforeseen black swan events are avoided, we could successfully attain what has been coined a "soft landing."

Exhibit 1 (Fed Funds Target Rate – FDTR: The overnight interest rate that our Central Bank, the Federal Reserve, uses to control the overall level of interest rates in the economy. The Fed funds rate has been held after the last two most recent FOMC meetings.)

Exhibit 2 (10-Year Treasury Index Rate – 10YT: The interest rate on US government bonds with a maturity period of 10 years. Generally used as a benchmark for determining long-term rates for similar tenor debt facilities.)

A Note on Equities:

The Dow Jones Industrial Average experienced a resurgence as rates hinted at greater accommodation, concluding the year at $37,689 — a remarkable increase of over 15% from the quarter's outset. Similar positive trends were observed in the S&P 500, marking a 12.8% rise, and the NASDAQ, which surged by 15.5% during the quarter and an astounding 53% for the entire year. This upward trajectory is seemingly attributed to the revitalizing impact of artificial intelligence on technology, reminiscent of the transformative wave of technology witnessed in the early 2000s. This has led some pundits to ask the question: "When does this bull run end?"

More specific to the commercial real estate community, we are optimistic rates will continue to fall, and are hopeful the costs of raw materials such as steel (currently at highs not seen since 2007 & 2010) will also continue to drop.

Exhibit 3 (NASDAQ Index – NDX: basket of stocks with an emphasis on technology)

Exhibit 4 (ARCA Steel Index – STEEL: companies in the steel industry)

Outlook for 2024: Navigating Uncharted Waters with Confidence

Looking ahead, 2024 promises to be a year of adaptation, growth, and resilience. The lessons learned from 2023 position us to face the future with a renewed sense of purpose and strategic foresight. Embracing technological advancements like artificial intelligence, learning from past challenges, and leveraging the support of a more accommodative Federal Reserve, we are well-equipped to navigate the uncharted waters that lie ahead.

In conclusion, as we celebrate the successes and learn from the challenges of 2023, let us embrace the opportunities that 2024 presents. Here's to a prosperous 2024 filled with growth, innovation, and collaborative success! Cheers!🥂

Take a look at our analysis of four important interest rate graphs.