Highlights from the Global Markets in 4Q23
U.S. Equity: The S&P 500 Index approached a record high as the year closed. Of note, 2023 was the first year since 2012 that the S&P failed to reach a high-water mark. That said, the index was up an impressive 11.7% in 4Q and 26.3% for the year. The tech sector was the clear winner for the quarter and the year (+17.2%; +57.8%) while Energy (-6.9%; -1.3%) was the only sector to register both a 4Q and 2023 decline.
Small caps (R2000: +14.0%; R1000: +12.0%) outperformed large caps for the quarter but lagged for the year (R2000: +16.9%; R1000: +26.5%). Growth outperformed value in 4Q (R1000 Growth: +14.2%; R1000 Value: +9.5%) and even more substantially for the year (R1000 Growth: +42.7%; R1000 Value: +11.5%).
Index concentration continued to have a notable impact on returns in 4Q. The “Magnificent Seven,” which comprise over 25% of the S&P 500, accounted for 76% of the 2023 return for the index. Fourth quarter and 2023 returns for the bunch were impressive: Alphabet: +6.8%, +58.8%; Amazon: +19.5%, +80.9%; Apple: +12.6%, +49.0%; Meta: +17.9%; +194.1%; Microsoft: +19.3%, +58.2%; NVIDIA: +13.9%, +239.0%; Tesla: -0.7%, +101.7%. The index would have been up only about 10% for the year without these stocks, and the equal-weighted S&P 500 returned 11.9% in 4Q and 13.9% in 2023.
Global Equity: Global ex-U.S. equities (MSCI ACWI ex USA: +9.8%) performed well in 4Q and for the year (+15.6%) but lagged the U.S. Weakness in the U.S. dollar helped 4Q returns across developed markets (MSCI EAFE: +10.4%; MSCI EAFE Local: +5.0%). As in the U.S., growth outperformed value in the quarter (MSCI ACWI ex USA Growth: +11.1%; MSCI ACWI ex USA Value: +8.4%). However, value outperformed growth for the full year (MSCI ACWI ex USA Growth: +14.0%; MSCI ACWI ex USA Value: +17.3%).
Mirroring the U.S., Technology was the strongest sector for both the quarter and the year (MSCI ACWI ex USA Information Technology: +20.0%; +36.3%).
Emerging markets (MSCI Emerging Markets: +7.9%) also did well but underperformed developed ex-U.S. Emerging Asia was the weakest region (+6.7%; +7.8%) for both periods, hurt by China. China was a notable laggard (-4.2%; -11.2%). Latin America (+17.6%; +32.7%) was the best-performing region for the quarter and the year with Mexico (+18.6%; +40.9%) and Brazil (+17.8%; +32.7%) up strongly.
U.S. Fixed Income: The 10-year U.S. Treasury yield was volatile in 2023—ranging from an April low of 3.31% post the regional banking “crisis” to the October high of 4.99% and subsequently declining into year-end for a 3.88% close. Falling rates drove returns for the Bloomberg US Aggregate to +6.8% in 4Q and +5.5% in 2023, a sharp contrast to the -1.2% YTD print as of 9/30. Corporate credit strongly outperformed U.S. Treasuries in 4Q (excess returns of 203 bps) and for the year (455 bps). High yield (Bloomberg US High Yield) climbed 7.2% for the quarter and was up an equity-like 13.4% for the year.
The yield curve remained inverted, but to a much lesser extent; 35 bps between the 2-year and 10-year U.S. Treasury yields versus more than 100 bps earlier in the year. The Bloomberg Municipal Bond Index soared 7.9% in 4Q, reversing its YTD 1.4% decline as of 9/30; the index was up 6.4% for the year.
Global Fixed Income: The Bloomberg Global Aggregate ex USD Index rose 9.2% (hedged: +5.4%) in 4Q as rates fell and the U.S. dollar weakened. Full-year results (+8.3% hedged; +5.7% unhedged) were also positive but reflected an overall stronger greenback. Emerging market debt indices also posted solid returns. The hard currency JPM EMBI Global Diversified gained 9.2% in 4Q and 11.1% in 2023. The local currency-denominated JPM GBI-EM Global Diversified returned 8.1% in 4Q and 12.7% for the year.
Real Assets: Real assets generally performed well in 4Q with the notable exception being energy. Reflecting sharp declines in natural gas and oil, the S&P GSCI sank 10.7% for the quarter. Metals were up, with gold hitting a new high (S&P Gold Spot Price: +11.0%). Materials (S&P 100 Materials: +13.1%), REITs ((MSCI: US REIT: +16%), and infrastructure (DJB Global Infrastructure: +12.1%) all posted double-digit returns. TIPS underperformed nominal U.S. Treasuries but were up 4.7% for the quarter (Bloomberg US TIPS Index).
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