Business
The broader market's gains were largely driven by the so-called Magnificent 7 companies, which include Apple, Microsoft and Alphabet.
People pass the front of the New York Stock Exchange in New York, Tuesday, March 21, 2023. (AP Photo/Peter Morgan, File) AP
December 29, 2023 | 5:22 p.m
NEW YORK (AP) — The S&P 500 ended 2023 with a gain of more than 24% and the Dow closed near a record high as easing inflation, a robust economy and the prospect of lower interest rates encouraged investors, especially in, the last two months of the year provided a boost.
Shares closed with slight losses on Friday.
The S&P 500 slipped 13.52 points, or 0.3%, to 4,769.83. That's still just 0.6% below an all-time high set in January 2022, and the benchmark index still posted a rare ninth straight week of gains.
The Dow Jones Industrial Average fell 20.56 points, or 0.1%, to 37,689 after setting a record on Thursday.
The Nasdaq slipped 83.78 points, or 0.6%, to 15,011.35, but that was hardly a blemish given an annual gain of more than 43%, its best performance since 2020.
The broader market's gains were largely driven by the so-called Magnificent 7 companies, which include Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla. They accounted for about two-thirds of the gains in the S&P 500 this year, according to S&P Dow Jones Indices. Nvidia led the group with an increase of around 239%.
Most major indices pared losses from a dismal 2022. Smaller company stocks staged a late rally but erased most of their losses from last year. The Russell 2000 index ended 2023 up 15.1% after falling 21.6% in 2022.
The rally that began in November helped extend market gains beyond the big tech companies. It was a big psychological shift for investors, said Quincy Krosby, chief global strategist at LPL Financial.
“Investors were able to accept the fact that the market would end the year in positive territory,” Krosby said. “Above all, the broad market participation particularly reinforced and confirmed the price gains of the shares of smaller companies.”
Stocks on European markets rose slightly on Friday, also after a year of gains. The benchmark indices in France and Germany rose by double digits, while the British index rose by almost 4%.
Asian markets witnessed a mixed session for most markets on the last trading day of the year. The Nikkei 225 in Tokyo fell 0.2% to 33,464.17. It rose 27% in 2023, its best year in a decade, as Japan's central bank moved slowly toward ending its long-standing ultra-loose monetary policy after inflation finally exceeded its target of about 2%.
Hong Kong's Hang Seng Index closed flat, while the Shanghai Composite Index gained 0.7%. The Shanghai index lost about 3% this year and the Hang Seng fell almost 14%. Weakness in the real estate sector and global demand for Chinese exports, as well as high debt levels and wavering consumer confidence, have weighed on the country's economy and stock market.
Investors in the US began the year expecting inflation to ease further as the Federal Reserve raised interest rates. The trade-off would be a weaker economy and possibly a recession. But while inflation has fallen to around 3%, the economy is doing well thanks to solid consumer spending and a healthy labor market.
The stock market is now betting that the Fed can achieve a “soft landing,” in which the economy slows just enough to ease high inflation, but not so much that it falls into recession. Therefore, investors now assume that the Fed will start cutting interest rates as early as March.
The Fed has announced that it will cut its key interest rate by three quarter points next year. This rate is currently at its highest level in two decades at 5.25% to 5.50%.
This could boost broader market momentum even further in 2024. High interest rates and yields on government bonds are putting pressure on investment prices, so a sustained trend reversal means further relief from this pressure. Wall Street is forecasting stronger profit growth for companies next year after a largely lackluster 2023 as companies grapple with higher production and labor costs and a shift in consumer spending.
Investors in the bond market appeared to be headed for a third year of losses in a row until the situation changed at the end of October. Excitement over possible interest rate cuts sent bond prices soaring and yields falling. The yield on the 10-year Treasury note, which hit 5% in October, was 3.88% on Friday, up from 3.85% on Thursday.
The yield on the two-year Treasury note, more in line with Fed expectations, fell to 4.25% from 4.28% late Thursday. In October it also exceeded the 5 percent mark.
U.S. and international crude oil prices were relatively stable on Friday. Oil prices have fallen more than 10% this year, defying some experts' predictions that they could top $100 a barrel.
Despite production cuts by OPEC, a war between energy exporter Russia and another in the Middle East, the U.S. benchmark crude oil price fell nearly 11% in 2023 and a whopping 21% in the final three months of the year.
Increased production in the USA, now the world's largest oil producer, as well as in Canada, Brazil and Guyana offset lower OPEC production. Not all OPEC members participated in the cuts and some countries such as Iran and Venezuela are pumping more oil, energy analysts say.
Charles Sheehan contributed to this report.