In the final session of 2023, the S&P 500 paused near all-time highs, marking a slight deviation after an impressive run. However, for bullish investors defying doomsday scenarios, this was merely a blip in a market that achieved its lengthiest weekly advance since 2004.
Despite an $8 trillion surge in the S&P 500 in 2023, exhibiting resilience against Federal Reserve uncertainty, recession concerns, and geopolitical risks, signs of exhaustion surfaced. The market paused its five-day advance on an uneventful Friday, concluding its ninth consecutive week of gains.
Quincy Krosby at LPL Financial noted the market’s fatigue but emphasized that as long as broad participation continues, bullish sentiment should prevail amid geopolitical and domestic uncertainties. The consensus remains positive for 2024, expecting a strong year.
The S&P 500’s impressive 24% surge in 2023, fueled by the artificial intelligence boom and FOMO (fear of missing out), led to its longest winning streak since 2004. The Nasdaq 100 experienced its best year since 1999, with chipmakers, including Nvidia Corp. and Advanced Micro Devices Inc., witnessing their most significant annual gain in over a decade.
While the US 10-year yield concluded 2023 close to its starting point, the year saw dramatic fluctuations, dropping to 3.25% post-March’s banking crisis and later surpassing 5%. Key inflation data supported the narrative of aggressive rate cuts in 2024, contributing to solid gains in equities and bonds.
Former Treasury Secretary Lawrence Summers cautioned that investors might be underestimating inflation risks, emphasizing the possibility of the market not making sufficient progress on inflation, leaving limited room for Fed easing.
Despite concerns about a potential pullback if the US economy faces a mild recession, equity markets appear largely unperturbed. The VIX, a volatility gauge, remained below 13, indicative of investor complacency or even exuberance.
Adam Turnquist at LPL Financial acknowledged the overbought momentum but maintained a bullish outlook, citing positive historical returns during comparable periods. Following a nine-week winning streak, the S&P 500 historically posted favorable 12-month forward returns.
In other market movements, oil recorded its most substantial annual drop since 2020, and emerging-market currencies marked their best year since 2017.
