2023 Economic Recap and Prospects for 2024

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2023 may seem like a blur, but it was an action packed year for the stock market. The Federal Open Market Committee (FOMC) raised interest rates four times in 2023, for a total of 11 interest rate increases resulting in an approximate 5.25% increase since the start of quantitative tightening in March 2022.[i] While necessary to fight inflation, the Fed’s actions caused a steep decline in the stock and bond market that luckily did not persist into 2023.

Due to the Fed’s interest rate increases, yields on the 10-Year Treasury Bond rose from 3.87% to 4.76% last year. However, yields on 5-Year and 30-Year Municipal Bonds dropped from 2.56% down to 2.22% and 3.63% to 3.40%, respectively.[ii]

Rising interest rates in combination with higher costs of borrowing and slower growth in 2023 also led to five bank failures in 2023, the most prominent being Silicon Valley Bank in Santa Clara, Signature Bank in New York and First Republic Bank headquartered out of San Francisco.[iii]

Higher interest rates also cooled the white-hot housing market of 2021. The U.S. 30-Year Fixed Rate Mortgage peaked in late 2023 around 7.79%, a drastic increase from the historical low of 2.65% in January 2021. However, for those feeling like they missed the boat on a home mortgage or refinance, in context, things could be worse.  In 1981, the 30-Year home mortgage rate peaked for an all-time high at 18.63%, ouch! [iv]

Recapping 2023, let’s not forget how we held our breath when Congress trifled with defaulting on the U.S. debt in a game of brinkmanship over the debt ceiling. I guess somethings you forget on purpose. That agreement suspended the $31.4 trillion debt ceiling until January 1, 2025, when we will ride the merry-go-round again.

Inflation was also constantly on watch as the catalyst of Fed action. The 12-month inflation rate peaked in the summer of 2022 at 9.1% and thankfully dropped to around 3% in the summer of 2023, where it has been hovering for the last six-months, to the Fed’s disdain.[v] The Fed maintains that their inflation target is 2%, but analysts feel the Fed will hold on further interest rate increases under current market conditions. In fact, during the Fed’s December 2023 meeting, they forecasted three quarter-point rate cuts in 2024, which could bring the Fed Fund Rate to a target range of 4.5%-4.75% by the end of the year. However, inflation is proving stickier than expected, and that could lead to a pivot in policy that could make the stock market unhappy.[vi]

In a nut shell, in 2023 the stock market rose, then dropped, then rose again to a new higher high. For the latter, we are grateful. However, by the end of 2023, it was clear that much of the stock market gains were attributable to the “Magnificent 7” stocks, a term coined in 2023 to represent: Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT), Amazon.com (AMZN), Meta Platforms (META), Tesla (TSLA), and Nvidia (NVDA). These dominant mega-cap tech companies were responsible for roughly 65% of the returns of the S&P 500 in 2023! To explain, the index is capitalization-weighted, meaning each company within the index is weighted relative to its total market capitalization.  Therefore, companies with a larger market capitalization will have a greater impact on the index value than smaller companies. In this case, the Magnificent 7 now make up 28% in weighting of the S&P 500. Therefore, it can be misleading to compare the index to your own stock portfolio as a benchmark, as many of the other 493 stocks comprised within the S&P 500 large cap index were actually underperforming.[vii]

Some are comparing the Magnificent 7 to the “Nifty Fifty” of the 1960s and 1970s.  During that time, fifty large-cap stocks on the New York Stock Exchange, were said to be responsible for leading the bull market of the 1970s until the Bear Market of 1973-1974 also known as the Oil Shock. At the time, the Nifty Fifty included household names like General Electric (GE), Xerox (XRX), International Business Machines Corp. (IBM), Polaroid (now private), and Coca Cola (KO). The point is, investors should not become enthralled with the newest, shiniest thing and forget to weigh metrics like solid balance sheets and reasonable stock purchase prices.  

No one knows with certainty what the future will hold. Simply look at the last year where many reputable economists and well-respected CEOs predicted a “looming recession” in 2023, only to be proven wrong. As we head into this 2024 election year, it’s important to remember that the most sensational headlines grab attention, but they aren’t always 100% accurate. The stock market may sway as political candidates state strong positions that could impact future government spending. However, legislative change needs to be approved by the house and the senate, and it is unlikely that one political party will dominate both and sweeping change will transpire.

While a select few investors may have become rich in 2023 by holding just the Magnificent 7, past performance doesn’t always guarantee future performance. Also don’t forget that people always brag when they win, but not when they lose.  In times of volatility and uncertainty, change can come quickly and often unforeseen growth occurs in a different asset class than the asset class that performed best last year.  Therefore, consider diversifying your portfolio for 2024 if you’ve become over concentrated or have not rebalanced from 2023.  If you think your investment strategy could use a review, reach out to your Certified Financial Planner™ to ensure you’re well positioned for whatever the stock market holds in the year ahead. Happy New Year to you and wishing you all the best in 2024!


[i] https://www.forbes.com/advisor/investing/fed-funds-rate-history/
[ii] https://www.bloomberg.com/quote/BVMB5Y:IND?leadSource=uverify%20wall
[iii] https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/
[iv] https://fred.stlouisfed.org/series/MORTGAGE30US
[v] https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/
[vi] https://www.cnbc.com/2023/12/13/fed-interest-rate-decision-december-2023.html
[vii] Bob Veres Insider Information

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