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2023 - Q4 Quarterly Keynote Thumbnail

2023 - Q4 Quarterly Keynote


The fourth quarter saw year-to-date highs in stock prices, including the Dow Jones Industrial Average reaching 37,000 for the first time. The intertwined elements of lower inflation, expectations of Fed rate cuts, and lower interest rates were the primary drivers of higher stock prices and higher bond returns.

After a dip in October, the strong fourth quarter rally in stocks was broad-based, with Mid Cap and Small Cap stocks outpacing the (Large Cap) S&P 500. At the end of December, the S&P 500 came within 1% of all-time closing highs and intraday highs set in the first days of 2022. Small cap stocks and international stocks are also near 2-year highs. Third quarter earnings reports were generally better than expected, showing year-over-year growth for the first time in 2023. Fourth quarter earnings are expected to grow as well, which should be enough for full-year 2023 earnings to be higher than 2022. 2024 earnings are currently expected to grow more than 10%. Stocks can move higher with earnings growth through 2024, unlike most of the move coming from higher valuations this year. Three of the eleven S&P 500 sectors drove performance in 2023: Technology, Communication Services, and Consumer Discretionary. Collectively, these sectors make up just under half of the weight in the index. These three sectors each returned over 39%, while the equal-weighted S&P 500 gained 13.9%. This illustrates how a handful of mega-cap stocks drove the index return of 26.3%.

Interest rates moved lower in the fourth quarter, which improved the total return from bonds. As a reminder, interest rates and prices move in opposite directions, so as rates moved lower, bond prices moved higher, along with investors receiving interest payments. In mid-December, the Fed changed its focus from rate hikes to rate cuts. This “Powell pivot” drove yields lower, with traders making moves looking well into the future. After yielding nearly 5% in October, the yields on 5-year and 10-year Treasury bonds were recently as low as 3.8%. At the end of the third quarter, the Aggregate Bond index had a year-to-date loss, which would have set the stage for a very rare third straight annual loss. Instead, the index rallied, more than generating its entire positive return for the year.

Jobs remain strong, with the most recent unemployment rate at 3.7%. After peaking in late September, oil fell in October, November, and December, helping short-term inflation readings. Housing prices, however, remained in an uptrend, lifted further by falling mortgage rates which ended the quarter near the same levels seen in May. Consumer inflation continued to moderate, with some readings approaching 3% compared to a year ago. Lastly, compared to this year’s projected GDP growth of over 2%, many expect 2024 GDP growth to be less than 1%.

From our team to you, we thank you for your continued trust and look forward to serving you in the coming year.

Ryan P. Johnson, CFA, CFP®
Managing Director of Investments


Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.