By: John Mateyko
Major U.S. equity indexes closed out 2023 strongly in the green, marking the second consecutive month of gains for the S&P 500. A Santa Claus Rally was not really needed for long-term investors, as major equity indexes have been enjoying a powerful rally that began in October.
Major Stock Indexes
For the month of December, the S&P 500 increased by 4.42%, the Nasdaq 100 reached an all-time monthly closing high by adding 5.51%–and the Dow Jones Industrial Average rose by 4.84%–also an all-time monthly closing high.
S&P 500: 9 Weeks in a Row
The lopsided performance with the “Mag 7” names leading the way has market watchers curious about the relative performance of the remaining index components of the S&P 500 heading into the new year. The rise of AI has fueled the gains in these select names, with 2024 being discussed as the year of AI implementation.
Bond markets pulled off their biggest two-month rally in decades. Well-deserved for long-term investors, with bonds enduring a prolonged bear market in light of rising interest rates.
Rate cut optimism helped to fuel the bond rally as investors weigh the increasingly dovish expectations of the Fed in 2024.
Small-cap stocks, as measured by the Russell 2000 Index, have come to life in a big way in the last two months, gaining ground on their large-cap counterparts after failing to participate in broad stock market rallies for much of the year.
December’s jobs report (November data) showed a positive trend. The Nonfarm Payroll data for November indicated a gain of 199,000 jobs, which exceeded the estimated 190,000 and the previous month’s gain of 150,000. The result is a “just right” scenario, or what some describe as a “Goldilocks” scenario. The healthcare and government sectors have created many of these new employment opportunities.
The labor market picture shows signs of the economy experiencing a soft landing, which is good news. This can mean that the economy is cooling down but not heading towards a full-blown recession. The markets also reacted favorably to the jobs report, as the results were very close to expectations, resulting in less volatility.
In addition, the U.S. unemployment rate dropped to 3.7%, lower than the expected 3.9%. Overall, the labor market continues to impress, with an increase in the labor force participation rate and a decrease in unemployment.
Fed Pivot & Rate Cut Expectations
In December, the Federal Reserve held its December policy meeting and left benchmark interest rates unchanged at 5.25% – 5.50% for the third consecutive time, which was in line with market expectations. That said, the Fed indicated that it’s more likely to shift towards a more accommodating monetary policy stance soon, which could include rate cuts.
Fed members projected the possibility of three 25-basis point rate cuts in 2024. This move towards a more dovish policy was well-received by the markets, as major U.S. stock indexes rose and treasury yields fell.
Markets Versus Fed
With the Fed broadcasting a message of 3 rate cuts in 2024, current market pricing and expectations show the equivalent of 6 to 7 quarter-point rate cuts.
Historically, rate cuts have been utilized by the Fed as stimulus during periods of economic contraction. Looking at the major stock market indexes, there are no signs of cooling–at least not at the end of December. Wall Street and Main Street are two different things, however.
December featured a bullish continuation from November’s rally across major market indexes.
As January begins, the feeling across markets is easygoing at the time of writing. Markets could be overdue for some type of pullback after this recent runup, which could create opportunities for investors with cash on the sidelines.
About John Mateyko
John Mateyko is a highly experienced financial advisor who has built a successful career spanning over twenty years. Currently based in Serenbe, Georgia, he is the Managing Partner of IDEX Financial, a firm he founded in 2010. With a primary focus on creating retirement income plans, John’s aim is to help his clients achieve their financial goals.
After obtaining a degree in business studies from Augustana College, John embarked on a fulfilling career, holding key positions at renowned firms such as Morgan Stanley, Atlas Securities, US Bank, and JP Morgan Chase. Throughout his career, he has been recognized for his exceptional portfolio management skills.
John Mateyko’s dedication to delivering exceptional service is evident through his prestigious certifications, including Fiduciary Financial Planner, Wealth Management Certified Professional (WMCP), Retirement Income Certified Professional (RICP), and Accredited Portfolio Management Advisor (APMA). Currently, he is pursuing the Certified Investment Management Analyst (CIMA) certification from the esteemed Yale School of Management, showcasing his commitment to continuous professional growth.
About IDEX Financial
IDEX Financial, established in 2010 as a boutique investment firm in Chicago, expanded to the Atlanta, Georgia market in 2018 and established its headquarters in Serenbe, Georgia in 2020. At IDEX, John’s primary objective is to guide clients through the complexities of retirement planning. He tailors strategies striving to meet each client’s unique financial needs, aiming to provide expert advice and a sense of security, with the ultimate goal of empowering them to make informed decisions about their financial futures.
Outside of his professional responsibilities, John values his family and community. He actively engages in community enrichment activities in Serenbe, a peaceful town in rural Georgia known for its emphasis on wellness, community spirit, and appreciation for nature.
In conclusion, John Mateyko’s extensive experience, commitment to ongoing education, and personalized approach demonstrate his dedication to positively impacting the lives of his clients and the community he calls home.