2023 was an eventful year (aren’t they all?!).  Exhibit 1 shows the weekly % changes in the S&P (green and red bars) and the level of the index (black line).  The annotations are the major stories of the year that [could have] affected the markets. It’s not meant to be a comprehensive list, just my personal observations.  We started the year off with a nice 9% run into early February, which was followed by an 8% sell-off due to a mini banking crisis. Remember Silicon Valley Bank and FDIC riding to the rescue? Then we had a nice 20% run into late July on hopes of soft landing. Market abruptly changed its mood and sold off by 10% on worries about Fed crashing the economy by being too hawkish after all. Then we got a nasty geopolitical surprise in the Israel/Gaza conflict. The Speaker drama in the U.S. House of Representatives contributed to the dour mood. In late October we careened back to jubilation when softer data led to “it’s a soft landing after all” mood. From there the major indices closed 2023 with a nine-week win streak.

Exhibit 1 – 2023 S&P 500 Timeline

Exhibit 2 shows 2023 performance for major asset classes and it looks pretty good. After an ugly 2022, almost every corner of the market had a nice bounce. Bitcoin led the rebound after being left for dead in the wake of FTX collapse.  Tech stocks enjoyed a huge rally of 55% led by the “Magnificent Seven” (more on that next week). S&P 500 returned a respectable 26%, followed by 18% for Developed Foreign stocks. Gold and dollar were up as well. The only negative asset was oil with 5% drop.

Exhibit 2 – 2023 Performance for Major Categories

Let’s also look at detailed fixed income universe breakdown (Exhibit 3). Every single category of bonds had positive returns last year, although they barely made a dent in the horrific losses from 2022. It’ll be a while before fixed income scars heal and we get back to even with 2021 levels. Riskier bonds did the best in 23, which is in line with risk-on environment we saw across all markets. Government bonds struggled to stay positive until a big rally late in the year as rates dropped on expectations of more dovish Federal Reserve.

Exhibit 3 – 2023 Performance by Fixed Income Groups

In the next post, I will take a closer look at sector and stock performance.