As we close the chapter on a dynamic 2023 and step into 2024, it is clear that change has been the only constant in the financial landscape. The final quarter of 2023 saw US equities rally, ending a year of unexpected turns and twists on a high note. The Dow soared by 12.48%, the S&P 500 climbed 11.24%, and the Nasdaq impressively rose by 13.56%, paralleling the Russell 2000’s gains. This surge, fueled by soft landing momentum and Federal Reserve rate cut expectations, marked a significant shift from the challenges faced earlier in the year. The S&P 500’s remarkable nine-straight-week rally to end December, a feat not seen since 2004, was particularly noteworthy. All sectors, except energy, contributed to this rise, showcasing a broadening market strength beyond the ‘Magnificent 7.’ This trend was further evidenced by the equal-weight S&P outpacing its cap-weighted counterpart and the Russell 2000 posting its best month since November 2020. These movements signal a diversification in market drivers, a welcome departure from the dominance of tech heavyweights. Overall, the S&P 500 finished the year up over 24%, led by the Nasdaq which was up over 43%. Though some rotation occurred, the Magnificent 7 (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla) still accounted for nearly 2/3 of the S&P 500’s gain for the year.
Treasuries also rallied, contributing to the easing of financial conditions. The Goldman Sachs US Financial Conditions Index (FCI) showed a remarkable easing, the largest in a single month in four decades, demonstrating a significant shift in the economic environment. The Fed’s pivot toward rate cuts in 2024, as indicated in the December FOMC meeting, played a crucial role in shaping investor sentiment and market dynamics.
Despite the rally, the year presented its fair share of challenges. The aggressive rate hikes by the Fed, geopolitical tensions, and the March banking crisis, including the collapse of institutions like Silicon Valley Bank, tested the resilience of the financial markets. Yet, the Fed’s swift response to protect uninsured deposits and the containment of broader contagion fears underscored the strength and adaptability of our financial systems. The geopolitical landscape also remained complex, with ongoing conflicts and tensions. However, the market’s response to these events has been characteristically muted, focusing more on economic indicators and policy directions.
As we look ahead, it is important to remain vigilant. While the market ended on a high and continues to set new highs in January, challenges persist. Inflation remains above the Fed’s 2.0% target, and the lagging effects of the rate hikes continue to influence economic activity. The possibility of higher economic growth or geopolitical events disrupting food and energy prices could significantly impact inflation and, consequently, Fed policy.
In this context, our approach remains consistent – focusing on building well-balanced portfolios that can withstand short-term disruptions and capitalize on long-term opportunities. The recent market rally, though encouraging, should be viewed with cautious optimism. We continue to monitor the evolving economic landscape, ensuring our strategies are aligned with the latest developments and positioned for both resilience and growth.
Finally, in the fourth quarter of 2023, the world lost Charlie Munger, investing genius and lifelong partner of Warren Buffett. Among Mr. Munger’s many brilliant quotes, this one is important to remember, “It’s in the nature of stock markets to go way down from time to time. There’s no system to avoid bad markets.” Our focus remains steadfast on navigating these complexities and managing risk to achieve sustainable, long-term success for our clients.
John Webb
Financial Advisor
Pinnacle Asset Management
Raymond James Financial Services
Kidd Private Wealth Group
This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.
