Last year, the stock market faced challenges due to the Federal Reserve Board’s rapid rate hikes and the reversal of QE policies. Analysts were concerned about a potential recession, drawing parallels to the 2008 financial crisis. In fact, 85% of economists predicted a recession in a poll taken a year ago.

Bad Pundits

However, the pundits were proven wrong. Throughout 2023, especially in the last quarter, the markets not only weathered the challenges but also saw significant gains across various categories.

Stocks

The S&P 500 index of large company stocks gained 11.24% during the year’s final quarter and overall finished up 24.23% in calendar 2023. The Russell Midcap Index finished the 2023 calendar year up 17.23%. The Russell 2000 Small-Cap Index posted a 16.93% gain in the past 12 months.

The foreign markets moved generally in lockstep with the U.S. gains. The broad-based EAFE index of companies in developed foreign economies gained 10.09% in the final quarter of 2023 to finish the year with a 15.03% gain in dollar terms. Emerging market stocks of less developed countries, as represented by the EAFE EM index, gained 7.04% in dollar terms on the year.

Bonds

The dramatic interest rate movements in 2022, which led to unusually steep losses in bond portfolios, thankfully didn’t carry over to 2023. Yields on 10-year Treasury bonds rose from 3.87% to 4.76% currently. 30-year government bond yields rose incrementally from 3.96% at this time last year to 4.03% as of the start of the new year.

Unlike the turbulent bond market of 2022, 2023 saw more stable interest rate movements. Yields on 10-year Treasury bonds rose, but the steep losses in bond portfolios did not continue.

2023 in Review

Despite the positive market performance, 2023 was eventful, marked by three regional bank failures, rising mortgage rates impacting the housing market, and inflation concerns. Notably, a small group of stocks, including Apple, Microsoft, and Amazon, dominated S&P 500 returns, reminiscent of the ‘Nifty Fifty’ bubble in the 1960s and 1970s.

Takeaway

Looking ahead, uncertainties remain. While the current market sentiment suggests optimism, cautiousness is advised. The S&P 500’s high price-earnings ratio and potential economic shifts signal a need for prudent expectations. The future remains uncertain, as even well-informed predictions a year ago proved largely incorrect.


Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.