The Most Searched Financial Terms of 2023
2023 was a year that brought us no shortage of interesting news, from bank failures to spiking mortgage rates to yet another debt ceiling showdown. As we approach the end of the year, let's review five of the most searched financial topics of the year (Investopedia).
Bank Failures
In March several prominent banks failed and had to be bailed out. Just about everyone was learning about FDIC insurance and the role the federal government plays in supporting these key institutions. Major news publications were calling Silicon Valley Bank the first domino and that a major financial crisis was in the works. It’s during times like these that remaining calm becomes most crucial. Since SVB’s failure on March 10th, the S&P 500 is up nearly 20%.
Artificial Intelligence
While Artificial Intelligence (AI) is not new (IBM was using forms of it with their original computer systems in the 50s), it became one of the hottest investment themes of the year as applications of the technology began to increase. Nearly every major CFO was looking for ways to mention the term “AI” on quarterly earning calls to excite investors. It undoubtedly was a major factor in the strong stock market returns this year. While there are some concerns about how this technology could be misused, it is widely considered a huge net positive for the economy. New improvements like AI are one of the main reasons why I am long-term bullish on the US and world economies.
Inverted Yield Curve
The yield on various treasury bonds was a hot topic throughout the year, particularly because of the strange status of the bond market. In a normal environment, the longer the bond you buy, the more yield you get per year (for example a 1-year bond pays 3% and a 5-year bond pays 4%). This makes sense since you should be compensated for lending your money for a longer time. However, in 2023 the yields were inverted, with longer-term bonds yielding less, in some cases much less, than short-term bonds. Right now, you can get roughly 5.4% on a 6-month treasury but only 4.2% on a 10-year treasury.
Assumable Mortgage
The spike in mortgage rates over 8% made home buying difficult for many. An 8% $400,000 mortgage is $3,000/month vs. $1,700/month for a 3% rate. With rising interest rates, new home buyers looked for creative ways to afford a home. One of those ways was assuming the mortgage of the current owner of the home, who likely had a much lower rate by refinancing in 2020 and 2021 when rates touched under 3%. While not all mortgage companies allow this, there does seem to be some growing interest in making this more widespread to help with the housing affordability issue.
Debt Ceiling
Unfortunately, investors were again left concerned as threats of a government shutdown and possible default brought momentary fear into the market. While the debt ceiling has been around since WWI, it became a major talking point starting in 2011 when US debt was downgraded from AAA to AA. What most people don’t know is that the added cost of these standoffs is substantial. If the risk of default increases, investors will demand more interest for the same bond, which costs US taxpayers. The debt ceiling needs to be addressed, but not in a last-minute panic like 2023.
While knowing the ins and outs of the most relevant financial terms will likely not help you invest better, it may help you participate a bit more at Christmas dinner!
Happy Planning,
Alex
This blog post is not advice. Please read disclaimers.