In 2023, investors were encouraged by reducing inflation, a robust economy, and the possibility of reduced interest rates. As a result, the S&P 500 ended the year up more than 24%, while the Dow concluded almost at a new high.
On Friday, stocks ended the day slightly down.
To reach 4,769.83, the S&P 500 dropped 13.52 points, or 0.3%. Even yet, the benchmark index recorded a unique ninth week of advances and is now just 0.6% behind its all-time high, which was reached in January 2022.
Following its record-breaking performance on Thursday, the Dow Jones Industrial Average dropped 20.56 points, or 0.1%, to 37,689.54.
The Nasdaq experienced a slight decline of 83.78 points, or 0.6%, to 15,011.35, but overall performance was better than it has been since 2020, with a yearly gain of over 43%.
Throughout most of the year, seven stocks—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla—were primarily responsible for the market’s advances. According to S&P Dow Jones Indices, the Magnificent 7 are responsible for about two-thirds of the S&P 500’s gains this year. Driven by the craze for artificial intelligence, Nvidia led the pack with a rise of about 239%.
Quincy Krosby, chief global strategist at LPL Financial, noted that a robust surge in November and December transcended the major technology companies and represented a significant psychological shift for investors. The smaller-company Russell 2000 index saw a climb of more than 20% over the two months, ending 2023 with a gain of 15.1% following a decline of 21.6% in 2022.
“The confirmation and reinforcement of gains for smaller company stocks, which were especially significant, came from widespread market participation,” according to Krosby.
U.S. investors entered this year still suffering from the steep losses they suffered in 2022 on both stocks and bonds. As the Federal Reserve raised interest rates, it anticipated that inflation would decrease even more. A recession and a weakened economy would be the price to be paid. Although inflation has decreased to about 3%, the economy has continued to grow as a result of strong consumer expenditure and a robust labor market.
The stock market is currently placing bets on the Fed’s ability to pull off a “soft landing,” in which the economy contracts just enough to contain excessive inflation without going into a recession. Investors now anticipate that the Fed will start reducing rates as early as March.
Three quarter-point reductions to the benchmark interest rate are anticipated from the Fed in 2019. Now, that rate is at its highest point in 20 years, ranging from 5.25% to 5.50%.
In 2024, lower rates can further feed the momentum of the entire market. Wall Street is projecting better earnings growth for businesses in 2024, following a mainly dismal 2023 as they battled increased labor and input prices as well as a shift in consumer spending.
Before things started to improve in late October, bond market investors looked like they were set for a third consecutive losing year. The anticipation of possible interest rate reductions caused bond values to surge and yields to decline. The yield on the 10-year Treasury increased from 3.85% on Thursday to 3.88% on Friday, after hitting 5% in October.
The yield on the two-year Treasury dropped from 4.28% late Thursday to 4.25%, more in line with Fed estimates. In October, it exceeded 5% as well.
This year saw strong advances across several international areas. Germany’s and France’s indexes increased by double digits, but the British index increased by less than 4%.
The Nikkei 225 in Tokyo saw a rise of 27% in 2023, marking its strongest year in ten years, as the Japanese central bank gradually shifted away from its ultra-lax monetary policy after inflation finally surpassed its target of roughly 2%.
This year, the Hong Kong Hang Seng index dropped by around 14%, while the Shanghai Composite index lost roughly 3%. The nation’s economy and stock market have been negatively impacted by weakening real estate markets, declining consumer confidence, excessive debt levels, and a decline in international demand for China’s exports.
The price of crude oil was comparatively constant on Friday, both in the US and abroad. This year, the price of oil fell by over 10%, contrary to some experts’ expectations that it would surpass $100 per barrel.
The price of U.S. benchmark crude fell by about 11% in 2023 and a staggering 21% in the last three months of the year, despite production cutbacks from OPEC, a conflict involving Russia, a major energy producer, and another in the Middle East.
Reduced output from OPEC was countered by increased production in the United States, which is currently the world’s largest oil producer, as well as in Canada, Brazil and Guyana. Energy analysts point out that not all OPEC members took part in the production limits and that some nations—like Venezuela and Iran—are producing more oil.
