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The 2023 Economic Roller Coaster: What Drove the Hills and Dips?

Wrapping Up 2023 by Isakov Planning Group

With the turn of the calendar page, we welcome the arrival of 2024. It’s the ideal time to review a wild 2023 in the U.S. financial markets, driven in good measure by movement on interest rates and inflation.

Interest Rates and Their Effect on Stocks and Bonds

From the beginning of 2023 through the third quarter, high interest rates inhibited growth in the equity markets. However, the last quarter surprised most experts with extraordinary advances: The Dow Jones Industrial Average finished the year up by 13.7%, the S&P 500 index recorded a 24.2% increase, and the Nasdaq 100 was up by 53.8%. Undoubtedly, the Federal Reserve’s interest rate policy incited a part of this growth, but few had expected this magnitude of an upswing.

The historical inverse relationship between interest rates and bond returns was also on display through the first three quarters of 2023. The benchmark 10-year U.S. Treasury bond traded as high as 5% during the year, but began to drop in the fourth quarter, easing the fears of bond purchasers. This may foreshadow a better 2024 for the bond market.

The price of gold rose 12.7% by the end of 2023, even reaching (momentarily) all-time highs in early December. The price of Bitcoin, which has a history of wild swings, also jumped 150% in 2023.

Inflation Eases, Sending Some Prices Lower

The consumer price index peaked in June 2022 at 9.1% (year over year) and has been decreasing at a steady clip ever since. Of course, some prices have been stubbornly rising, including services. However, food and energy prices rose only 4% in 2023. The Federal Reserve believes this decline in inflation will continue into 2024.

As a result of lower inflation numbers, consumer confidence rose in the final two months of the year, no doubt bolstered by the blistering stock market rally that occurred in the fourth quarter. This also bodes well for (at least) early 2024. Consumer confidence, which often parallels retail sales trends, finished at a 5-month high. Unsurprisingly, monthly retail sales were better than average from August to December.

The labor market had a banner year in 2023, and jobs growth was  impressive until tailing off a bit in the fourth quarter. Even so, the labor market continues to grow and is not expected to slow in the near future.

In our next article, we’ll talk about what we, at Isakov Planning Group, expect these trends will mean for 2024 and your financial planning.

If you have any questions about your savings strategies and how to adjust your planning based on last year’s results and next year’s expectations, please contact us today!

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