The stock market finished 2023 with a bang. The S&P 500 has now logged nine consecutive weeks of gains, a streak not seen since 2004. The extended rally in risk assets came as the economy remained resilient and inflation slowed. The Federal Reserve signaled they are done raising rates and forecasted rate cuts later in 2024.
The nine straight weeks of gains has led to a 16% move higher in the S&P 500 since October lows, bringing the 2023 return of the index to 26.3%. 4.5% of that came in December, a small fraction compared to the 12.8% return seen in small cap stocks. Foreign developed and emerging markets also participated in the rally, up 5.3% and 4.0% respectively.
The shift in interest rate expectations also led to a significant bond rally. Interest rates move inversely to prices and since the 10-year treasury topped 5% in October, it has slid to end the year at 3.9%. During that same time, the bond market has popped 9.3% to finish the year up 5.5.%
Interest rate hikes, persistent inflation, recession fears, wars, and a regional banking crisis were among the many factors endured by the markets in 2023. Despite all of the turmoil, the Magnificent Seven technology stocks drove the S&P 500 within reach of all-time highs.
If history is any indication, 2024 could be another positive year, albeit muted. Since 1950, there have been 21 times that the S&P 500 gained more than 20%. Over that period, the following year was positive 76% of the time, with an average return of roughly 10%. However, only once has the following year’s gain been more than the previous.