Wall Street’s bullish 2023 close confirms good outlook for US economy

With the prospect of looser monetary policy in 2024, the U.S. stock market closed the last session of the year slightly lower, which does not tarnish the remarkable upward momentum recorded in the last months of the year, propelling all three major indexes to monthly, quarterly and annual gains. During 2023, all three indexes have posted double-digit growth.

Analysts see reasons for optimism heading into 2024. The soft landing of the U.S. economy, with inflation tamed, consumer spending steady and a very resilient labor market, has buoyed trading, notably in the S&P, which has posted gains of more than 20% this year.

At the close of trading on Friday, the S&P 500 bulls posted their longest weekly gain since January 2004. While the broadest index in the U.S. stock market closed today down 0.28%, leaving it just under 30 points from a record close, it has gained 24% this year, with a record-breaking final finish. This year has been much kinder to the market than the last: the benchmark index fell about 20% in 2022.

Like the S&P 500, the Dow Jones and Nasdaq have also posted nine consecutive weekly gains, the longest streak since early 2019. The Dow hit multiple all-time highs in December, including records in each of the last five trading sessions. This Friday, it was down 0.05% to close at 37,689. In 2023, it has made gains of 14%.

But Nasdaq has been the shining star of the year, despite the turbulence in the sector (massive layoffs in Big Tech, the disruption of X, formerly Twitter, and its competitors, and the race to lead in artificial intelligence). Although down 0.56% this Friday, closing at around 4769, it is up 43% on 2023, its best performance since 2020. It remains roughly 1,000 points below the all-time high it reached in November 2021 — an indication of how poorly the tech sector performed in 2022 and how much room it still has left to recover.

Nvidia, the top performer

Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla, the group of the so-called Magnificent 7, dominated the S&P 500 and soared more than 100% in 2023. Nvidia gained 246%, Meta gained 184% and Tesla, despite some technical problems, soared 130%. Each of those companies had plummeted more than 50% in 2022.

On the negative side, and to the joy of the euro or the yen, among other currencies, the U.S. dollar is on track for its worst year since 2020. The U.S. dollar index, a measure of the performance of the world’s reserve currency against six other currencies, is down more than 2% over the year. The greenback has been weakened by the prospect of rate cuts next year.

With respect to US Treasuries, after reaching nearly 5%, the 10-year bond yield has ended 2023 below 4%. Yields on longer-term U.S. Treasury bonds retreated from November and closed near the levels they were at this summer.

Despite analysts’ and investors’ optimism heading into 2024, there may be dark clouds on the horizon. Geopolitical tensions (the war in Ukraine and the risk of maritime traffic disruptions in the Red Sea due to the war in Gaza) and tensions with China (and the performance of its economy, especially the real estate market) are keeping Wall Street on its toes. The resilience of the U.S. economy, however, is helping. A year ago, inflation was hovering around 6.5%. Today, that rate has more than halved to 3.1%. Consumer spending continues apace, while unemployment remains at 3.7%, and the banking crisis of the spring, with the failure of several regional banks, is now just a distant memory. No one dares to claim victory, but the stock market results show that the specter of recession — which hovered over the U.S. economy for months — seems to have been averted.

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