Week in Review: December 29, 2023

January 2, 2024

Recap & Commentary

Markets ended the week modestly higher with the S&P 500 finishing the year less than 1% from its all-time high set on January 3, 2022. Despite the near unanimous forecast at the start of the year, that the economy would enter recession in 2023 and as a result market returns would be disappointing, both the economy and the markets defied expectations. US equity market performance in 2023 was driven by increasing optimism that the economy would avoid recession and that that the Fed might defy historical precedent and achieve an elusive “soft landing.”

While US large caps enjoyed a particularly strong year, the S&P 500 gained 24.3%, other asset classes also experienced strong performance. US mid and small caps returned 15.2% and 15.1%, respectively while international developed and emerging markets gained 15.0% and 7.0%, respectively.

US fixed income markets also enjoyed a positive 2023. After falling 13.0% in 2022, its worst year on record back to 1976, the Bloomberg US Aggregate Bond Index, the broadest measure of the US bond market, gained 5.5%, its best year since 2020. Like equity markets, bond markets benefitted from the belief that the Fed has now reached the end of its current rate hike cycle and is likely to cut rates multiple times in 2024.

Looking ahead to 2024, uncertainty is likely to remain elevated on a number of fronts. In the US, political uncertainty will be heightened by the Presidential election. Economically, a recession cannot be completely dismissed given the Fed’s history of precipitating them via their rate hike cycles. Globally, tensions remain high between both Russia and the West and China and the West, while ongoing fighting between Israel and Hamas threatens to involve larger regional actors such as Iran and potentially even the US.

Economic Commentary

A relatively quiet economic calendar was highlighted by housing data.  Pending home sales, which measures housing contract activity, were flat in November despite 30-year mortgage rates falling over 0.5% during the month, from 7.8% to 7.2%. While lower mortgage rates are certainly welcomed by potential buyers, many would-be sellers remain reluctant to list their properties as doing so would most likely mean giving up their existing, lower rate, mortgage. According to industry group Redfin, 82% of homeowners have an existing mortgage with a rate below 5%, while 62%, have a rate below 4%, and 23.5% have a rate below 3%. Little wonder why current homeowners might be reluctant to sell their homes unless absolutely necessary. Should mortgage rates decline further in 2024 it could help boost existing home sales which are currently mired at levels last seen in 2010.

Weekly jobless claims rose 12K to 218K. One of the largest surprises in 2023 was the resilience of the consumer which benefitted directly from the economy continuing to add new jobs throughout the year. After peaking at just over 260K in June, week jobless claims have generally declined since, suggesting that labor market conditions remain constructive entering 2024.

Of Note

According to industry group Dealogic, companies going public in 2023 raised just $120B globally. That marked a 29% decline from the $170B raised in 2022, and an 80% decline from the $600B raised in 2021.

Market Indices   (As of 12/29/2023)

• Dec. Employment Report
• ISM Manufacturing
• ISM Services
• JOLTs Job Openings
• Factory Orders
• Weekly Jobless Claims