S&P 500 Concludes 2023 with Over 24% Gain, Dow Nears Record High amid Economic Resilience
The S&P 500 wrapped up 2023 with a remarkable 24% increase, and the Dow approached a record high, driven by diminishing inflation, a resilient economy, and the anticipation of lower interest rates, particularly in the final two months of the year.
On Friday, stocks experienced modest losses, with the S&P 500 slipping 0.3% to 4,769.83 points. Despite this, the benchmark index still achieved a rare ninth consecutive week of gains, coming within 0.6% of its all-time high from January 2022.
The Dow Jones Industrial Average fell 0.1% to 37,689.54 points after setting a record the previous Thursday. The Nasdaq saw a 0.6% decline to 15,011.35 points but maintained an annual gain of over 43%, its best performance since 2020.
Throughout the year, the broader market's gains were largely steered by the "Magnificent 7" stocks—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla—contributing to about two-thirds of the S&P 500's gains. Nvidia led the group with a notable 239% gain, fueled by the artificial intelligence frenzy.
A significant shift in investor sentiment occurred in November and December, with a strong rally that extended beyond major technology companies. The Russell 2000 index of smaller companies surged over 20% during these two months, concluding 2023 with a 15.1% gain, bouncing back from a 21.6% decline in 2022.
Entering the year, U.S. investors anticipated challenges due to sharp losses in 2022. However, the economy maintained momentum, supported by solid consumer spending and a robust job market, while inflation eased to around 3%. Investors are now optimistic about the Federal Reserve achieving a "soft landing," leading to expectations of rate cuts starting as early as March.
The Fed has indicated three quarter-point cuts to its benchmark interest rate next year, which currently sits between 5.25% and 5.50%. Wall Street anticipates that lower rates could further boost the market's momentum in 2024.
Bond market dynamics experienced a turnaround starting in late October, with potential interest rate cuts driving bond prices up and yields down. The 10-year Treasury yield, which hit 5% in October, stood at 3.88% on Friday.
Global markets also witnessed solid gains, with double-digit advances in France and Germany. Tokyo's Nikkei 225 recorded a 27% gain in 2023, its best performance in a decade.
However, some markets faced challenges, with the Shanghai Composite index losing about 3% and the Hang Seng index in Hong Kong falling nearly 14%, influenced by weaknesses in the property sector and global demand for China's exports.
Oil prices remained relatively stable on Friday, concluding a year in which the price of oil fell by more than 10%, contrary to predictions of surpassing $100 per barrel. Increased production from the U.S., Canada, Brazil, and Guyana offset production cuts by OPEC members, contributing to the drop in oil prices.