2023 Q4 Market Commentary

For the last few years, I have used the first market commentary of the new year to look back at the top stories of the prior year and look ahead to potential themes of the coming year.

First, here are the stories that we anticipated would impact investment markets and the economy in 2023:

  • Interest Rates – After raising rates by 4.25% in 2022, by how much would the Federal Reserve (Fed) continue to raise rates in 2023??
    • The Fed only increased the Federal Funds Rate by 1% in 2023 and signaled the possibility of zero additional increases going forward. This factor played a major role in the stock market’s positive year in 2023.
  • Corporate Earnings – Would deteriorating corporate earnings hurt stock prices?
    • Final 2023 earnings are not yet available, but consensus earnings growth on the S&P 500 is 1.3%.[1]
  • Recession Fears – Would the U.S. economy enter a recession in 2023?
    • The U.S. did not enter a recession in 2023, contrary to most economists’ predictions at the start of the year. Many economists are now thinking that it is possible to avoid a recession altogether (at least for the next few years).
  • Ukraine – An end to the fighting in Ukraine would be good on a humanitarian scale and would also benefit the world economically.
    • There is still an ongoing war in Ukraine. In addition, it has become a major political talking point in the United States and could play a major role in the upcoming election.
  • FAANG Stocks – Facebook, Amazon, Apple, Netflix, and Google (FAANG) performed well for the 10 years prior to 2022 but pulled way back in 2022.
    • Goodbye, FAANG, and hello Magnificent 7 (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla). This is the term used to describe the high-flying stocks that returned 111% on average in 2023.
  • International Stocks – For the first time in years, 2022 was better for international stocks than U.S. stocks, but what about 2023?
    • International stocks did quite well, with the MSCI EAFE[2] returning 18.73%, but trailed the S&P 500, which returned 24%.
  • Debt Ceiling – We entered 2023 knowing that we would reach the limit of debt that the U.S. could issue without a congressional act.
    • Congress continues to pass short-term resolutions to raise the debt ceiling. While this is not a long-term solution, it no longer seems to have much effect on the markets.
  • Inflation – Getting inflation under control was key in getting the Fed to stop raising rates.
    • The Fed has not yet reached their goal of 2.00% inflation. The latest inflation reading was 3.35%, but that is much lower than the high of 9.10% in June 2022.
  • China – Would growth restart and put upwards pressure on inflation?
    • The latest growth number out of China was 5.2%, but that should be taken with a grain of salt, as we don’t have great insight or trust in their GDP numbers. We do know that the iShares MSCI China ETF was down 11.22% in 2023[3], indicating there is still caution for the growth prospects in China.
  • Georgia Bulldogs – Can they “three-peat”?
    • Unfortunately, after 728 days, Georgia is no longer the reigning National Champion after Michigan beat Washington on Monday, January 8th.

Now that we’ve reflected on 2023, on to the themes we are watching in 2024:

  • Presidential Election – The election will dominate the headlines in 2024. I don’t see a whole lot of good that could come from me saying much about the election aside from the fact that it will add volatility to the markets.
  • Magnificent 7 – Will these stocks continue to soar, or will they pull back (and pull back the entire stock market with it?) Or…
  • Stock Rotation – A third possibility: investors sell and/or trim their gains in the Magnificent 7 but reinvest in sectors of the stock market that did not experience much growth in 2023.
  • Interest Rates – Is the Fed really done raising rates, and will its next move be to cut? This could turn out to be the case, but current GDP, inflation rates, and unemployment rates make that far from a certainty.
  • International Issues – Will the conflicts in Gaza and Yemen lead to a bigger conflict, possibly involving Iran? Will China‘s military posturing around Taiwan escalate into something more than just posturing, and if it does, what will the West do about it?
  • Russia and Ukraine – Will the U.S. and EU continue to fund Ukraine’s defense (as funding it becomes increasingly unpopular), and if not, will it force Ukraine to seek peace?
  • Is India the new China? – In 2023, India overtook China to become the most populous country on earth. It is investing heavily in infrastructure and bringing in foreign investment.
  • Soft Landing – Will the Fed be able to bring down inflation enough (by increasing/holding rates) without causing a recession?
  • AI – Where will the Artificial Intelligence revolution go in 2024, and what companies will be the big winners?
  • Will Bonds Be Back? – If interest rates decrease and the economy slows, will bonds be a safe haven for investors?

There you have it, a look back and a look ahead. At Persium, we will continue to follow these themes and any others that develop throughout the year and assess the impact on the economy and the markets.

Although I’ve listed ten themes, the one that will likely receive the most media attention will be the presidential election. However, the bigger issue for the markets and the economy will likely be what the Fed does in terms of interest rates. If they do not lower rates during 2024, it is possible that some of the market gains of 2023 could be reversed. Based on current comments from the Fed, that is unlikely. Either way, we continue to believe that a well-diversified portfolio, combined with sufficient cash reserves, is the most proven method for any market environment. Please contact us if you have any questions or would like to discuss our predictions in more detail.

– Will Bowen

[1] Butters, J. (2024, January 16). S&P 500 will likely report year-over-year earnings growth of at least 4% for Q4. FactSet Insight – Commentary and research from our desk to yours. https://insight.factset.com/sp-500-will-likely-report-year-over-year-earnings-growth-of-at-least-4-for-q4

[2] The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the U.S. and Canada.

[3] https://www.morningstar.com/etfs/xnas/mchi/performance

The views and opinions expressed are of Persium Advisors, LLC. This commentary is provided for educational purposes only and should not be construed as investment advice. Persium Advisors is an investment advisor firm located in Atlanta, GA.

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