Market Review - Quarter 4, 2023
After a brutal 2022, investors were delighted in 2023 as markets were driven higher by a stronger-than-expected economy, falling inflation, and light at the end of the tunnel with respect to the Federal Reserve’s interest rate hiking cycle.
Source: FactSet
Global equities had its best year since 2019. Within global equities, US stocks led 2023 markets with a 26.3% return driven by a handful of technology stocks tied to artificial intelligence enthusiasm. In international equities, better-than-expected progress on inflation in Europe and a weaker yen, paired with optimism from corporate governance reform in Japan, led to an 18.9% gain for developed international equities. On the other hand, emerging market equities ended the year with a 10.3% gain as strong gains in Taiwan, India, and Korea offset losses in China.
US sector performance was uneven in 2023. Technology and its related sectors enjoyed strong gains, while defensive sectors such as Utilities and Consumer Staples had negative returns in 2023.
Across size, bigger stocks did better and, within style, growth trounced value. Large caps (S&P 500) rose by 26.3% and outperformed small caps (S&P 600), which only rose by 16.1%. This divergent performance can be attributed to the fact that the small-cap index has a lower weight of technology stocks. Finally, across style, the Nasdaq, a heavy growth and technology-oriented index, gained 44.6%, while the Dow Jones 30, a value-oriented index often synonymous with dividend payers, was up 16.1%.
Bond investors breathed a sigh of relief after avoiding a potential third straight year of losses. Instead, the broader bond market rallied late in the year, with the US bonds up 5.5% in 2023. Bond prices surged in the fourth quarter of 2023 as investors were comforted by the Fed’s shift to potential interest rate cuts in 2024. Lower quality bonds, such as high yield, were surprisingly resilient on strong fundamentals and gained 13.4%.
Finally, across other asset classes, commodities fell while gold and REITs gained. Despite the geo-political conflict, oil prices fell 21% as US production soared and demand weakened from China. Gold, viewed as the ultimate safe haven asset, gained 15.1%. Lastly, REITs gained 11.4%, supported by strong demand for data centers and lower interest rates in 2024.
IMPORTANT INFORMATION
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