2023 Annual Market Review

It was a year that defied expectations by many accounts. A number of forecasts predicted that the US economy would enter a recession in 2023 as the Federal Reserve raised interest rates to fight high inflation. But the economy remained resilient, inflation eased, and the Fed declined to lift rates later in the year. US stocks rose in 2023, despite some setbacks along the way.1 Many economists who called for a recession have since walked back their predictions. This underscored that guessing where markets may be headed is not a reliable way to invest.

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A year that many speculated would be lackluster for US stocks saw the S&P 500 post gains of 26.3% on a total-return basis, extending a bull-market rally that began in 2022.2 Global stock markets also bounced back after posting their worst year since the financial crisis. Equities, as measured by the MSCI All Country World Index, rose 22.2% even as geopolitical tensions increased, with war continuing in Ukraine and hostilities erupting in the Middle East (see Exhibit 1).3 Developed international stocks, as represented by the MSCI World ex USA Index, added 17.9%, while emerging markets notched smaller gains, with the MSCI Emerging Markets Index up only 9.8%.4

Exhibit 1: Moving On Up (MSCI All Country World Index (net div.) in 2023)

US inflation continued to retreat from June 2022’s four-decade high of 9.1%, with the 12- month rise in consumer prices falling to 3.1% in November, a lower level than many had expected.5 After raising rates three times in the year’s first half, the Fed made only one additional increase later in 2023. Policymakers indicated they will likely continue to hold interest rates steady, despite inflation remaining above its 2% target. Against this backdrop, even while the broad economy remained strong, some sectors, such as real estate and finance, lagged.6 Higher interest rates dampened home sales and new development activity. In the financial sector, the rapid rate increases in early 2023 left some regional lenders, such as Silicon Valley Bank, in precarious financial positions, with the value of their long-term Treasury bonds sinking. Many nervous depositors withdrew their cash, resulting in three of the four largest bank failures on record (after Washington Mutual in 2008).

In Washington, politicians debated the US debt ceiling and government funding. The president and Congress eventually agreed to raise the debt limit in June, avoiding a US default. Despite the two-year spending deal, Fitch downgraded its credit rating on US debt, citing the country’s rising fiscal deficits and “the erosion of governance” that has led to multiple clashes over the debt limit in recent decades. However, stock and bond markets seemed to take the news in stride. While debt ceiling debates and credit rating downgrades often dominate headlines, implications for investors can be muted. The US government temporarily averted a shutdown after the House and Senate passed short- term funding deals in September and again in November. The threat of a shutdown still looms if a longer-term funding resolution isn’t reached in early 2024, but, as for stock returns, history shows the result of a shutdown isn’t necessarily poor equities performance.


Economic resilience in the US and elsewhere is helping boost the global outlook for 2024, but as investors learned last year, the only thing certain is that there will be plenty of uncertainties. Many variables are in play for markets this year, from wars in Ukraine and the Middle East to questions around interest rates. Investors are also likely to be closely following the upcoming presidential election in the US. But it’s worth noting that the political party that wins the White House is just one of many factors investors consider when pricing assets, and stocks have generally trended upward regardless of which party holds the presidency. This may be reassuring when one considers the difficulty, or perhaps futility, of trying to guess what is going to happen in 2024—or any year.

Foot Notes:

  1. Based on the 2023 calendar-year return of the Russell 3000 Index, which rose 26.0%.
  2. S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
  3. MSCI data © MSCI 2024, all rights reserved.
  4. Based on the 2023 calendar-year returns of S&P and MSCI indices.
  5. Inflation data as defined by the Consumer Price Index (CPI) from the US Bureau of Labor Statistics.
  6. The real estate and financial sectors of the Russell 3000 rose 24.1% and 14.1%, respectively, vs. 26.0% for the index.

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