December Market Recap
When making New Year’s resolutions, is it permissible to wish for more of the same?
Investors would gladly take a repeat performance from the stock market in the year ahead. The S&P 500 increased in nine consecutive weeks to end the year and gained more than 24% in 2023, effectively erasing the bear market losses from a year before.
It was the third time in the last five calendar years the S&P returned more than 20%, and the benchmark index begins 2024 within 1% of its all-time high.
A strong December put the exclamation point on a bullish two months for US equities. Fueled by cooling inflation and a more dovish Federal Reserve, the S&P rose more than 16% from its late-October low through year-end.
Ten of the 11 equity sectors were positive in December with Real Estate (+8.0%) and Industrials (+6.8%) serving up the juiciest returns. Energy (-0.2%) was the only sector to finish the month negative.
Benchmark Returns: December 2023 | YTD 2023
|
Dow Jones
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Dow Jones
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S&P 500
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NASDAQ
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+4.84% | +13.70%
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+4.42% | +24.23%
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+5.52% | +43.42%
|
|---|
For all the headlines about stocks, this rally does not happen without the significant reversal in bonds. 10-year Treasury yields climbed as high as 5% in late October, then fell all the way to 3.8% just after Christmas. The wild swing lit a fire under stocks, and that momentum persisted through the holiday season.
It seems reasonable that bond yields may find a middle ground in the months ahead, with 10-year Treasuries likely moving back above 4%. That said, the “higher-for-longer” outlook on interest rates was already a minority opinion by the time Fed Chair Jerome Powell took the podium on December 13.
That’s when Powell made the Fed pivot official. Not only did the Fed avoid raising interest rates at its December meeting, it also adjusted formal policy projections to include three rate cuts in 2024. This acted as a rubber stamp of approval on the stock rally, further fueling the animal spirits.
Inflation – the biggest financial story of 2023 – seems destined to be more of a footnote in the new year. Falling inflation at this point is hardly newsworthy and with economic growth projected to slow, inflation seems unlikely to re-accelerate in a meaningful way. The latest Consumer Price Index (CPI) showed 0.1% inflation from a month earlier and 3.1% inflation from a year ago. The Personal Consumption Expenditures (PCE) data reported in December was similarly benign.
The expectation for lower rates means a more friendly economic environment for growth stocks. The NASDAQ Composite outperformed in both November and December. Its 43% calendar year return was nearly double the S&P 500 and more than triple the Dow Jones Industrial Average. With those numbers in mind, it’s no surprise that Technology was the best performing equity sector last year (+56.4%).
Small cap stocks have also benefitted in a big way. The Russell 2000 index gained 12% in December (more than twice the NASDAQ) and 24% from its late October low. It’s a massive change in momentum for an asset class that lagged the major US benchmarks for most of 2023.
Third quarter GDP was revised lower to show 4.9% annualized growth (down from original estimates of 5.2%).
West Texas Intermediate Crude oil fell another 3% in December and now trades below $72 per barrel. That’s 25% lower than three months ago. Gasoline prices have fallen to $3.10 per gallon (national average), according to AAA.
Gold prices increased 1.3% last month and 12.8% total in 2023.
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
Marks Group Wealth Management performs in-house analysis on companies. Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings. The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice. Additional information is available upon request.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser. Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.
Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets. No strategy assures success or protects against loss. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price to-book ratios and higher forecasted growth values.
Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
VIX-The Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. It is calculated and disseminated on a real-time basis by the CBOE, and is often referred to as the fear index or fear gauge.
