In 2023, the S&P 500 index faced numerous challenges as it attempted to close at a record high. Despite its best efforts, it fell short in the end.
The S&P 500 came close to reaching its all-time high of 4797, reaching 4793 on Thursday morning. However, by the end of the Christmas-shortened week, it settled at 4770, recording a modest gain of 0.32%. Nevertheless, it finished the year with a significant increase of 24.2%, marking its largest gain since 2021. Interestingly, this was the first time since 2012 that the index failed to reach a record high throughout the year.
Similarly, the Nasdaq Composite saw a rise of 43.4% for the year, but it too fell short of achieving a new record. It experienced a slight uptick of 0.12% in the past week. The Dow Jones Industrial Average, on the other hand, managed to surpass expectations by climbing steadily throughout the year. It closed at a record high on December 13 and concluded the year with a growth of 13.7%.
Despite initial concerns and negative projections, 2023 can still be considered a successful year for the market. Many experts predicted a recession in the U.S., but these forecasts proved to be incorrect. In reality, the gross domestic product (GDP) exceeded expectations, growing at a rate faster than 2% in the first half of the year and accelerating to 4.9% in the third quarter. Even in the fourth quarter, the GDP is on track for a solid growth rate of 2.3%, according to the Atlanta Federal Reserve's GDPNow model. This serves as a reminder that economists are fallible and their predictions should be taken with caution.
Overall, despite the disappointments and contradictory currents, 2023 has been a year of growth and resilience for the market, defying expectations and proving once again the unpredictability of the financial landscape.
A Year of Surprises and Momentum in the Stock Market
The year 2023 brought unexpected economic strength to the stock market, leading to a continuation of corporate profits despite a few stumbling blocks along the way. The S&P 500 is expected to see a 3% increase in earnings-per-share, with a majority of sectors reporting growth. However, the energy and materials firms experienced significant declines, which is not surprising considering the unsustainable profitability driven by soaring commodity prices in 2022.
This economic strength also had consequences that caught many off guard. The Federal Reserve was compelled to raise interest rates to a much higher level than anticipated at the beginning of the year. Initially, futures predicted rate cuts, but contrary to market expectations, the Fed adopted a more hawkish approach. Consequently, bond yields spiked, causing some regional banks to face significant challenges. However, as the year progressed, these market dynamics underwent a violent reversal, resulting in a stock market rally. Even external factors such as wars abroad and fiscal policy drama in Congress failed to dampen investor enthusiasm for long.
The surge in investor interest in artificial intelligence stocks played a considerable role in driving the market's momentum. Many investors flocked to companies that were perceived to be the clear beneficiaries of near-term advancements in AI, such as Nvidia and Microsoft. Consequently, there was an uneven distribution of gains in the stock market during the first ten months of 2023, with a few dominant companies leading the charge. However, by November, this trend started to taper off, and the gains became more widespread. Nevertheless, it is noteworthy that more than two-thirds of S&P 500 stocks have yielded less return compared to the overall index for the year. This divergence surprised many market observers.
As we enter into 2024, it is almost certain that the S&P 500 will reach a new record high during January. However, in such a dynamic environment, making predictions beyond this point becomes challenging.
