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2023 Review Thumbnail

2023 Review

2023 Overview

Asset prices climbed during the 4th quarter of 2023 as a full “Santa Claus Rally” was sparked when Fed Chair Jerome Powell announced that additional rate hikes are “not likely”. Furthermore, it appears the Fed is discussing when to cut rates, which could happen as early as the first half of 2024.  It seems possible that the Fed is winning its war against inflation, but it remains to be seen what damage these higher interest rates will do to the overall economy, which so far has remained resilient.  The capital markets are anticipating a “soft landing”, as evidenced by the late Q4 rally. This is a scenario where a recession is largely avoided. However, higher interest rates can take several months to work into the system and certain risks do remain.

Perhaps the simplest way to look at what has happened in the markets over the last two years has been to follow the inflation numbers.   In 2022, stocks and bonds were down sharply as inflation surged to a 9.1% year-over-year growth rate in June.   Since then, inflation has cooled dramatically all the way down to a 3.1% reading in November of 2023 with stocks and bonds performing well for the year.  Inflation, and the subsequent moves by the Fed, will remain a key focus for 2024 as their policy has swung markets in either direction dramatically throughout the last two years.  If inflation continues cooling, then the Fed can feel that they have accomplished their mission and can normalize rates by reducing them over time which could be a tailwind for asset prices.

Aside from inflation and the Fed, politics will take center stage in 2024 as the country decides who the next president will be.   While this is likely to be highly contested given the landscape of politics, historically the party that wins the presidency does not move markets as much as most might think.  

Equity Markets

Stocks recovered nicely in 2023 with the S&P 500 Index nearing an all-time-high towards year end posting a 26.29% return for the year.  Returns were particularly robust for the 4th quarter where this index advanced 11.69%.   As discussed earlier, this rally was triggered by the Fed’s comments regarding not just pausing their rate hiking policy, but also possibly reducing rates in the near future. 

One thing worth noting for the 4th quarter of 2023 is that we saw a broader rally across equity markets.  The story for much of the year in the stock market was how narrow the advancement was.  The “Magnificent Seven” stocks (Apple, Microsoft, Alphabet, Nvidia, Amazon, Meta, and Tesla) were providing almost all the return of the S&P 500.   In the 4th quarter, a broader market rally took place as Small and Mid-cap stocks soared.  In fact, during the quarter, these indexes advanced 11.67% and 14.03%, respectively, as measured by the S&P Midcap 400 and Russell 2000 Indexes.

International stocks also were positive for 2023 with the EAFE Index advancing 18.24% for the year, and 10.42% for the 4th quarter alone.  Challenges remain in Europe, especially with multiple wars closer to their borders; however, much of the inflationary pressures facing Europe and the rest of the globe have subsided. Emerging markets performed perhaps the worst for 2023 advancing only 9.83% in 2023, and 7.86% for the 4th quarter.   Still, there were some domestic sectors of the market that underperformed for the year, such as utilities, healthcare, consumer staples and energy.

While the market did broaden out a bit in the last quarter, the NASDAQ Composite index advanced the most in 2023.  It is worth noting that this was the biggest loser the prior year.  Last year, the tech-heavy index declined over 33%, marking one of its worst years ever.   This year, these stocks roared back advancing a whopping 44.64% as excitement over Artificial Intelligence (AI) advancement sent some tech stocks to all-time highs.  This index advanced 13.79% for the 4th quarter alone.   These stocks tend to move more up or down depending on which way the market is moving in many instances, which was certainly on display over the last two years.

Fixed Income Markets

For 2023, bond returns were positive with the Aggregate Bond Index advancing 5.53% for the year.  Bond investors enjoyed higher coupon payments for bonds with rates surging to their highest point in over 15 years.  Even so, bonds did experience more volatility in 2023 than normal with the 10-year treasury yield surging to almost 5% before declining to around just 3.8% by the end of the year.

It was helpful to see bonds provide return for the year as bonds declined by over 12% in 2022, marking the worst year ever recorded.  As financial advisors, we thought it was important to not abandon bonds in client portfolios just because one year did not work when the prior several decades proved that bonds can be attractive investments. Going forward, the Federal Reserve that is looking to cut interest rates should be accommodating for fixed income investments.


Cryptocurrencies rebounded after a disastrous 2022, with Bitcoin moving higher throughout 2023, and closing the year at a price north of $42,000.  Ethereum also advanced to around $2,300 by the end of the year. Several large investment companies are working through the legal process to try to implement ETFs containing cryptocurrencies as a means of creating an alternative investment to clients.  

2024 Outlook

At the end of 2022, we advised we felt things were set up better in 2023, with higher interest rates allowing bondholders to earn more, and we noted inflation was already trending downward.  When things improve, markets can move quickly.  While the market’s recovery from 2022’s dip has been slower than the recovery from 2020’s COVID crash, the stock market has largely recovered, and we sat near all-time highs by year-end.  Going into 2024, the major threat of inflation seems to be waning; however, there is still a threat of possible recession, although some economists have been calling on that for the past two years.

The 2024 election cycle is likely to exhaust some Americans as the country remains more divided politically than we have seen in decades.  Still, history has shown that our economy and the stock market can prove fruitful regardless of the party in power.  

At CRA, we want to thank you, our clients, as we worked through a difficult market over the past two years.  We strive to be your coach and trusted advisor to help you and your family navigate the markets and your financial lives.


CRA Investment Committee

Matt Reynolds CPA, CFP®

Tom Reynolds, CPA 

Robert T. Martin, CFA, CFP®

Gordon Shearer Jr., CFP® 

Jeff Hilliard, CFP®, CRPC®

Joe McCaffrey, CFP® 

Phillip Tompkins, CFP®

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