It was a great year, one full of missed predictions, superlative market moves, contradictory currents—and one final disappointment. No matter how hard it tried, the
just couldn’t close at a record high in 2023.
Oh, it tried. The S&P 500 got as far as 4793 on Thursday morning, just inches from its all-time high of 4797, before finishing the Christmas-shortened week at 4770, up 0.32%. It closed the year up 24.2%, its biggest gain since 2021. It was the first time since 2012 that the index failed to close at a record high at least once during the year.
The
43.4% rise for the year also fell well short of a record after ticking up 0.12% this past week. Only the
up 0.81% for the week, managed to scale that mountain when it closed at a record on Dec. 13—then kept on climbing. It finished up 13.7% in 2023.
Despite that, the year has to be considered a success—especially considering the gloom heading into it. The consensus opinion called for a 2023 recession in the U.S., and it was dead wrong. Gross domestic product grew at a faster-than-2% annual rate in the first half of the year, then accelerated to 4.9% in the third quarter. The fourth quarter is on pace for annualized GDP growth of 2.3%, per the Atlanta Federal Reserve’s GDPNow model. It wasn’t the first time that economists blew it, and it won’t be the last.
That momentum kept corporate profits aloft, despite some hiccups early in the year. The S&P 500 is on track for an earnings-per-share increase of about 3% in 2023, with eight out of 11 sectors reporting growth. Energy and materials firms saw the biggest declines, a natural follow-up to an unsustainably profitable 2022 buoyed by soaring commodity prices.
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That unforeseen economic strength brought surprises of its own. It forced the Fed to raise interest rates far higher than markets were expecting at the start of the year, when futures were pricing in cuts by the end of 2023. The more hawkish Fed caused bond yields to spike—and some regional banks to go bust—before violently reversing in the final months of the year, igniting a rally in the stock market. Even wars abroad and fiscal policy drama in Congress couldn’t dent investor enthusiasm for long.
The burst of enthusiasm for artificial-intelligence stocks certainly helped, with investors piling into the clearest near-term beneficiaries, including some of the market’s biggest companies. Gains from
Nvidia
,
and others drove an exceedingly top-heavy rally in the first 10 months of the year. The gains broadened by November, but more than two-thirds of S&P 500 stocks have returned less than the index in 2023. Few saw that coming, either.
As for that S&P 500 record? It will probably happen early in January—and that’s the only part of 2024 we feel comfortable calling.
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Write to Nicholas Jasinski at nicholas.jasinski@barrons.com
