2023: A Wall Street Rollercoaster with a Thrilling Finish

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A Year of Triumph, a Hint of Tango

2023, a year that began with echoes of a bear market’s growl, ended with a victory lap for investors. The S&P 500 pirouetted to a 24% gain, its sequined skirt brushing against a record high set eons ago. The Dow, ever the dapper gentleman, waltzed near its all-time peak, while the Nasdaq, the tech-fueled daredevil, broke out into a dizzying salsa, up a heady 43%.

This wasn’t just a party for the usual suspects. While the Magnificent 7 – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla – remained the headliners, a broader cast joined the revelry. The Russell 2000, the feisty underdog of smaller companies, shimmied to a 15% gain, casting off the shackles of 2022’s slump.

Photo Credit: Allison Joyce/Bloomberg/Getty Images

The catalyst for this joyous dance? A tango between inflation and interest rates. Inflation, the fiery temptress, had threatened to scorch the market in 2022, but the Federal Reserve, the stern but reassuring maestro, stepped in with a series of interest rate hikes. These hikes, like a well-placed hand on the back, slowed inflation’s fiery steps, but at the risk of tripping the economy into a recession.

But here’s the twist: the economy, resilient as a seasoned dancer, refused to stumble. Consumer spending remained buoyant, the job market kept its rhythm, and whispers of a “soft landing” – where inflation cools without a recession – began to fill the air. This newfound confidence fueled a late-year rally, with investors betting on the Fed’s ability to navigate this delicate tango.

In the bond market, yields – the music to investors’ ears – followed a similar rhythm. They soared in the summer heat of inflation, then dipped as the Fed’s rate hikes began to cool things down. Now, with whispers of future rate cuts in the air, bond prices are waltzing higher once again.

AP Photo/Richard Drew

Across the globe, the music played with varying tempos. European markets swayed to double-digit gains, while Tokyo’s Nikkei, finally shedding its ultra-loose monetary policy shackles, shimmied to its best year in a decade. China, however, remained in the shadows, its stock market burdened by economic woes and a tango partner (global demand) with two left feet.

Oil, the black gold that fuels the world’s engine, defied predictions of a $100-per-barrel moonwalk. Instead, it stumbled, its swagger dampened by increased production in the US and Canada. OPEC, the oil cartel, tried to cut its losses with production cuts, but like a mismatched pair on the dance floor, not all members followed the rhythm.

As the curtain falls on 2023, the market’s future remains an open question. Will the tango continue, fueled by hope and lower rates? Or will inflation, the untamed partner, waltz back onto the floor, disrupting the rhythm? Only time will tell the next steps in this intricate dance, but for now, investors can savor the sweet melody of a year well-played.

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