In 2023, the market outperformed expectations. The S&P 500 returned 24%.
Despite most analysts predicting a mild recession, the market climbed. But why?
During the Q1 BTWM Virtual Lunch Webinar, I discussed several reasons the market surprised us last year. This included three main drivers:
- Corporate Resilience
Earnings have grown despite turbulence in the economy and an expected recession. Over 81% of quarterly reports surpassed earnings expectations in Q3 of 2023. With earnings and consumer spending staying strong, prices are following suit.
- AI & The “Magnificent 7”
The magnificent 7 stocks include Microsoft, Amazon.com, Nvidia, Meta, Apple, Alphabet, and Tesla. Over the last 10 years, the lowest total return these companies have produced is 392% (Alphabet), and four of these companies have returned over 800%, including Tesla at 2,290% and Nvidia at over 12,000%. These seven S&P 500 stocks have accounted for around 60% of the market’s gains, and that rise can be at least in part attributed to the excitement surrounding monetizing artificial intelligence.
- Expected Fed Rate Cuts
The Fed is expected to cut interest rates in 2024, which has increased investor sentiment. For example, in late September, approximately 28% of investors were bullish about the market according to the AAII. Two months later in mid-December, over 50% of investors were bullish, and that level of optimism has held steady into 2024.
The economy continues to grow, but much of the expected growth and future rate cuts from the Fed have already been priced into the market. How that will impact returns throughout the year is yet to be determined. The future looks positive, but no market goes up in straight lines. There will be tests along the way, and some investors may exit to bank gains, which will impact the market in the short-term.
What questions do you have about the market in 2024 and/or your retirement portfolio? Ask below!