Financial Markets Review

5 Min Read
March 7, 2022
5 Min Read

Q4 2023

A broad global market rally drove risk assets higher in the fourth quarter amid disinflationary trends, resilient economic activity, and a dovish pivot from the U.S. Federal Reserve (the Fed). The S&P 500© Index gained 26.29% (including dividends) in 2023 and fully recouped the losses from 2022. Inflation readings continued on a promising downward trend from multi-decade highs with the Consumer Price Index (CPI) declining to a 3.1% annualized growth rate during the fourth quarter. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures Index (PCE), fell to 2.6% in November, edging closer to the Fed’s 2% target. With signs of inflation under control, the Fed moved away from its “higher for longer” interest rate message and signaled the potential for rate cuts in 2024. Actions by the central bank heightened expectations for an economic soft landing and fueled investor enthusiasm through the end of the year. 

U.S. economic growth and labor market data remained positive throughout 2023 in the face of tighter Fed policy, defying consensus expectations for an economic recession earlier in the year. During the fourth quarter the Commerce Department reported faster-than expected GDP growth of 4.9% annualized, driven in part by stronger consumer spending. Corporate earnings rebounded as well. According to FactSet estimates, fourth quarter corporate earnings are expected to increase by 1.3%, which would mark the second consecutive quarter of year over-year earnings growth. Tightness in the labor market eased slightly as hourly wages and the pace of job creation cooled, providing relief to inflationary pressures. The economy added an average of 165,000 monthly new jobs in the final three months of the year and the unemployment rate remained near a post-pandemic era low of 3.7% in December. The manufacturing sector continued to exhibit softness with a reading of 47.4 for the ISM Manufacturing Index in December. The ISM Non-Manufacturing Index declined to 50.6 during the quarter (a reading above 50 indicates economic expansion while a reading below 50 indicates contraction).


The equity market posted impressive gains in the fourth quarter as the S&P 500 advanced 11.69%. The rally broadened significantly beyond the group of “Magnificent 7” stocks (Microsoft, Apple, Meta Platforms, Nvidia, Tesla, Amazon, Alphabet), a welcoming development following the relatively narrow market rally through the first nine months of the year. In the fourth quarter the Magnificent 7 averaged a 12% gain, representing roughly a third of the Index’s total gain. For the full year, most sectors were positive with the exception of utilities (-7.08%) and energy (-1.33%). Seven sectors finished with double digit gains led by strong performance from information technology (60.93%), communication services (55.86%), and consumer discretionary (43.22%). The strength in information technology was led by Nvidia, which gained 239% in 2023 on the back of an emerging growth trend and surging demand for artificial intelligence (AI) chips. Growth stocks significantly outperformed Value stocks as the Russell 1000© Growth Index returned 42.68% compared to the 11.46% gain for the Russell 1000© Value Index. Small caps staged a strong recovery in the fourth quarter but still lagged large caps for the year as the Russell 2000© Index returned 16.93% in 2023 compared to 26.53% for the Russell 1000© Index. Outside the U.S., foreign developed markets registered an 18.24% return for the MSCI EAFE Index, while the MSCI Emerging Markets Index underperformed with a 9.83% return in 2023. 


A strong fourth quarter led the bond market to make a modest recovery in 2023 following a historically challenging year in 2022. The Bloomberg U.S. Aggregate Index, a broad gauge of U.S. bond market performance, returned 5.54% for the year. Interest rates were volatile, with the 10-Year U.S. Treasury touching 5% in October (a 16-year high) before declining sharply and ending the year yielding 3.88%. The U.S. Aggregate Index gained 6.82% in the fourth quarter alone, marking the strongest quarterly return for the Index in more than 30 years. Investment grade credit spreads tightened throughout the year within the corporate bond sector, driving a wide margin of outperformance from higher-yielding lower quality bonds. BBB-rated U.S. corporates returned 9.51% in 2023 compared to 6.95% for their AAA-rated counterparts. High yield bonds performed even better with a 13.45% return for the Bloomberg U.S. Corporate High Yield Index. Agency mortgage-backed securities underperformed the broader market with a 5.05% return while municipal bonds delivered a 6.40% return for the Bloomberg Municipal Bond Index.


Each of us at AMG appreciates the continued opportunity to assist you with your investing needs.

1 Dept. of Labor, FactSet.

2 U.S. Bureau of Economic Analysis, FactSet.

3 ISM, FactSet.

4 Crude Oil $/bbl, WTI, FactSet

All investments are subject to risk including possible loss of principal. Past performance is no guarantee of future results.

Please note that all performance data and comments are for the period from October 1, 2023 through December 31, 2023. Any sectors, industries, or securities discussed should not be perceived as investment recommendations. The views expressed represent the opinions of AMG Wealth and are not intended as a forecast or guarantee of future results. The information and opinions contained herein are current as of December 31, 2023 and are subject to change without notice. Information has been obtained from sources believed to be reliable, but its accuracy, completeness, and interpretation are not guaranteed. The Russell 1000® Index measures the performance of approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® represents approximately 92% of the U.S. market. The Russell 1000® Value Index is a large-cap value index measuring the performance of the largest 1,000 U.S. incorporated companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000® Growth Index is a market capitalization weighted index that measures the performance of those Russell 1000® companies with higher price to-book ratios and higher forecasted growth values. The Russell 2000® Index is composed of the 2000 smallest stocks in the Russell 3000® Index and is widely regarded in the industry as the premier measure of small-cap stock performance. The Russell 2000® Value Index is an unmanaged, market-value weighted, value-oriented index comprised of small stocks that have relatively low price-to-book ratios and lower forecasted growth values. The Russell 2000® Growth Index measures the performance of the Russell 2000® companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. The S&P 500 Index is a capitalization-weighted index of 500 stocks. The S&P 500 Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. U.S. Long Government Bond Index tracks the market for U.S. dollar denominated, fixed-rate, nominal U.S. Treasuries and U.S. agency debentures. The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries excluding the United States. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. Please go to for most current list of countries represented by the index. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI China Index captures large and mid cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). Please go to for the most current list of countries represented by the MSCI indices. The Bloomberg Global Aggregate ex USD Index is a measure of investment grade debt from 24 local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Bonds issued in USD are excluded. The Bloomberg U.S. Corporate High Yield Bond Index is a total return performance benchmark for USD denominated, high yield, fixed-rate corporate bonds having a maximum quality rating of Ba1/BB+/BB+ or below, as determined by the middle of the Moody’s, Fitch, and S&P ratings. The Bloomberg U.S. Municipal Index covers the USD-denominated long term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds. The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. The Bloomberg U.S. Corporate Bond Index is an unmanaged index representative of publicly issued, SEC-registered U.S. corporate and specified foreign debentures and secured notes The Bloomberg US Mortgage Backed Securities (MBS) Index tracks fixed-rate agency mortgage backed pass-through securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).

The Indices are unmanaged, are not available for investment, and do not incur expenses.

Investment advisory services are offered by AMG Funds LLC. AMG Distributors, Inc., member FINRA/SIPC.

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