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2023 Markets Recap

Stocks up, bonds down, commodities mixed for 2023, Bitcoin is Bitcoin

As we come to the end of the year, we thought it’d be a good time to look back at how markets performed this year.

In the chart below we use popular ETFs to show returns so far in 2023 across different stock portfolios (blue), commodities (black), bonds (green) and even Bitcoin (orange).

YTD Returns by asset class

Big picture, we saw that:

  • Equities did quite well, with the major equity indices up 9% to 45% YTD (first 3 bars), Growth stocks (+24%) outperforming Value (+15%), and Mid-Cap (+10%) and Small Cap (+7%) lagging the Large Cap indices.
  • Communications and tech sectors led: We know these sectors also saw strong earnings (Communication Services, Consumer Discretionary, and Tech). Each rose at least 30%, benefitting from consumer strength and/or AI optimism.
  • Goldrecently hit a record high (+11%), helped by safe-haven demand amid increased geopolitical tensions and a weakening dollar lately, as well as markets pricing in more cuts for the Fed recently (reducing the opportunity cost of holding gold).
  • Other commodities fell: Energy prices, especially gas, fell after new supply chains were secured following the war in Ukraine, resulting in increased inventories. A slowing global economy also weakened demand, just as improving supply also contributed to the drop in agricultural commodities (-15%) and industrial metals (-5%).
  • Long Bonds fell as interest income rose: higher rates means long-term bond prices fell (in order to earn a higher yield on the same bond today, it has to be cheaper than before, so your gains include interest and more appreciation). So long-term (20+ years) Treasuries are still down 7%. In contrast, Short-term Treasuries pay out all their interest income, and mature in just months, leaving the ETF with much higher income distributions, but a price that has stayed flat.
  • Bitcoin – has rallied (+99%) on expectations of a spot Bitcoin ETF getting approved this year (13 firms have filed to launch one), pushing the price of 1 bitcoin above $40k.

Not all stocks gained the same

With interest rates staying high, the strong equity market performance should come as a surprise. As a reminder, a year ago, with recession fears front and center, analysts were projecting the S&P 500 to fall by 1.7% this year. Instead, it’s up 19% YTD (chart below, orange line).

Although not all indexes or stocks saw those gains. The Dow Jones Industrial Average (grey line), which – with the exception of Apple and Microsoft – has more “mature” (and less Tech-y) companies in it, is up less than 10%.

While the growth-focused Nasdaq-100 is up 45% (blue line).

Equity indices

Magnificent 7 explains much of outperformance

A lot of the difference in performance in these indices comes down to exposure to the (Nasdaq-listed) “Magnificent 7” – Apple, Amazon, Alphabet (Google), Nvidia, Meta, Microsoft, and Tesla. All of which benefited from the “AI trade” this year – with investors hoping their proximity to data centers and compute will help them grow AI revenues.

Those stocks are up about 70% this year (chart below, blue line), compared to about 10% for the rest of the S&P 500 (orange line). And of course, they’re an even larger weight in the Nasdaq-100 than the S&P 500.

S&P 500 returns

Magnificent 7 returns reflect fundamentals

However, this is not like 1999 (the tech bubble, where prices rose even when many of the largest companies were still unprofitable). In fact, data show that the magnificent Nasdaq 100 companies have been growing earnings (chart below, red line) – and much faster than smaller companies in the Russell 2000 (black line).

Nasdaq-100 EPS

In addition, as Goldman Sachs highlighted recently, the Magnificent 7 margins are double the rest of the S&P 500’s (chart below), and their margins are expected to increase more than the rest of the S&P 500 over the next couple years (dots).


Although the market knows this too. That’s why the PE multiple for the Magnificent 7 is also much higher (pricing in higher earnings in the future), with a PE around 30 (chart below, blue line).

Interestingly, the rest of the S&P 500 (orange line) is at a much more reasonable PE of 17 – and the multiple of small and mid-cap stocks is even “cheaper,” and also below their long-term averages.

S&P 500 ratios

2023’s been a surprisingly great year for stocks

All in all, and in spite of higher rates and a slower-growing economy, 2023 has turned out to be a great year for stocks –certainly compared to expectations coming into the year.

With the Fed expected to start cutting rates in 2024, we will have a valuation tailwind for stocks (and bonds). Fingers crossed inflation keeps cooling, geopolitical risks don’t leak to energy markets, and we have a soft landing with earnings growth.

The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED. © 2023. Nasdaq, Inc. All Rights Reserved.

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