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Weekly Market Recap – December 27th to 31st, 2023

Introduction 

As we conclude the final week of 2023, the financial markets have presented an interesting blend of trends and performances. This week’s recap will delve into the key movements in equity and fixed income markets, as well as crucial economic indicators that shaped the market landscape.

The S&P 500 experienced an upward trend, marking its eighth consecutive weekly gain and closing just 1.3% shy of its near two-year high. The large-cap growth sector reported a substantial year-to-date increase of 42.53%, indicating a strong recovery from the previous year’s slump. Conversely, the large-cap value sector lagged but showed recent improvements. The small-cap sector, represented by the Russell 2000, emerged as the top performer in the fourth quarter with a 14.35% increase​

​Interestingly, the third quarter earnings results exceeded expectations, with 82% of the S&P 500 companies surpassing earnings estimates. This performance significantly outstrips the long-term average and indicates a resilient corporate sector amid challenging economic conditions.

The bond market remained relatively stable with minor changes. The 10-year Treasury yield dipped slightly to 3.9%, while the 2-year yield decreased by 13 basis points, ending at 4.31%. The yield curve steepened, reflecting a preference for shorter maturity bonds. In anticipation of the Federal Reserve’s potential rate cuts, Fed Fund’s Futures have priced in 5 to 6 rate cuts for the next year, doubling the current indications from the Federal Reserve​​.

The Personal Consumption Expenditures Index indicated a year-over-year rise of 2.6% and a monthly decline of 0.1%. Core PCE, excluding food and energy, showed an annual increase of 3.2%. These figures suggest an improving inflation environment, which is particularly relevant for consumer spending trends. The final estimate for the third quarter GDP was slightly revised downward to 4.9%, still marking robust economic growth. Additionally, the University of Michigan Consumer Sentiment Index increased to 69.7 in December, reflecting growing consumer optimism about easing inflation conditions​​.

Looking Ahead – As we step into 2024, the focus shifts to the upcoming earnings season, with major banks expected to kickstart the reporting. Current projections suggest a 5.2% earnings growth, highlighting a cautious yet optimistic outlook. The S&P 500’s valuations are reaching high levels, trading at 20.2 times forward four-quarter earnings. This scenario underscores the need for investors to maintain strategic asset allocations and prepare for potential market volatility. A balanced approach to asset management, including systematic rebalancing, could be crucial in navigating the uncertain market terrain ahead.

The final week of 2023 has set the stage for a dynamic 2024 in the financial markets. With robust corporate earnings, stabilizing bond markets, and an improving economic outlook, investors have much to anticipate in the new year. However, vigilance and strategic planning remain key as we navigate the complexities of the global financial landscape.

 

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