Looking Back and Ahead
Looking back at key factors and forces that shaped market results for 2023
and ahead with economic, market and portfolio thoughts for 2024.
Looking Back
Looking back, 2023 was a year of catch phrases: “Transitory Inflation,” “Higher for Longer,” “Supply Chain,” “The Magnificent Seven,” “A Recession is Coming,” “Soft Landing,” “Goldilocks Scenario,” “Stagflation,” “What about the Fed?” “Santa Claus Rally.” As the year unfolded, U.S. equity markets fluctuated up and down in the first half of the year then had three consecutive down months ending in October, with the S&P 500 hitting the low for the year on October 17th. Then, against that noise and backdrop, came a remarkable holiday gift: a widespread market rally.
The “What about the Fed?” question, as answered during the year by investors and the Federal Reserve itself, drove the movements in equity and bond returns. Investors reacted to every expectation of what the Fed would do next with rate hikes, and to what it actually did. Fed rate hikes (“Higher for Longer”) and the prolonged inverted yield curve drove investors to money market funds and short-term treasuries. This retreat pushed stock prices lower as demand for risk assets fell. In October, the yield on 2-year treasuries hit a 17-year high of 5.12%. The 10-year followed suit with a 16-year high of 4.7%.
The movement to money market funds was record-breaking. Money flows into money market funds in the year following the October 2022 stock market lows, had a net increase of over $1.1 trillion, or 24.4%. That is the largest jump ever following a market low. (Sources: S&P, Bloomberg) J.P. Morgan estimates that $6 trillion is currently sitting in money market funds and CDs.
