Wentz Weekly Insights
Stocks Finish 2023 Strong With Over 20% Gains

It was the ninth consecutive week of gains for the S&P 500, the longest winning streak since 2004. This past week was very quiet and saw a lack of catalysts which drove the S&P 500 higher with a small weekly gain of 0.32%. The fixed income market was mixed with Treasuries seeing a slight move higher with yields falling most on the short end of the curve.
It was a year that was dominated by big tech and the largest companies in the world – most of the year the top seven names in the index (Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, Tesla) drove all of the index’s gains. This was further driven by the rapid investment in Artificial Intelligence after OpenAI released its large language model chat bot ChatGPT, and the release of advanced AI chips from Nvidia and later in the year AMD. It was not until late in the year a rally in small caps changed this dynamic slightly, where most stocks began participating in the rally.
The rally in small caps was driven by a sharp drop in Treasury yields after the markets shifted its expectations on interest rates in early November after a surprise drop in one of the most followed inflation readings, the consumer price index. In October, markets were betting on three rate cuts by the Fed for 2024 (based on the CME FedWatch Tool), however by the end of the year that expectation has increased to nearly seven rate cuts, almost 2.0% of rate cuts. At the same time, the Fed and its policymakers are projecting just three rate cuts, signaling a big divergence between what markets believe will happen and what policymakers are projecting. We think this, along with overbought conditions, uncertainty on earnings growth and company’s ability to maintain pricing power, the lag effects of higher rates beginning to impact growth, tighter financial conditions, and a presidential election year, will lead to a more volatile period through the first part of the new year.
Here is how 2023 finished:
S&P 500: +24.23%
Dow: +13.70%
NASDAQ: +43.42%
Russell 2000: +15.09%
Equally Weighted S&P 500: +11.70%
Best day January 6 +2.28% – This came after seeing lower wage data and comments that rate hikes were “cooling” the economy.
Worst day February 21 -2.00% – This came after increased worries of more rate increases from the Fed.
Best sectors: Technology +56.40%, Communication Services +54.36%, Consumer Discretionary +41.04%
Worst sectors: Utilities -10.20%, Energy -4.80%, Consumer Staples -2.16%
International markets:
  • Nikkei 225 (Japan) +28.24%
  • Hang Seng (Hong Kong) -13.82%
  • SSE Composite (Shanghai) -3.70%
  • STOXX Europe 600 (Europe) +12.74%
  • FTSE 100 (UK) +3.78%
  • TSX Composite (Canada) +7.97%
Treasury markets:
  • 2-year yield: down 17 basis points to 4.25%
  • 10-year yield: unchanged at 3.88%
  • 30-year yield: up 7 basis points to 4.03%
  • Crude oil: -10.73% to $71.65/barrel
  • Silver: +0.21% to $24.09/oz
  • Copper: +2.10% to $3.89/lb
  • Gold: +13.45% to $2,071.80/oz
  • Dollar index: -2.11%

Week in Review:

Investors came back from the extended holiday weekend in buying mode again, sending stocks higher in a solid start to the week. Data for the day included home price increases that accelerated in October, now up 7% from the lows in January, while money supply increased slightly after declining for 13 of the past 16 months, though still up 35% from pre-pandemic levels (one of the main drivers of inflation). It was a very quiet day – two items receiving the most attention was stronger demand from an auction of 2-year Treasury notes and stocks moving within 1% of a record high. The S&P 500 closed up 0.43%, just off the highs of the day on very low volume, and small cap index Russell 2000 up 1.24%.
Another uneventful day on Wednesday had stocks finishing higher for the day. News flow was very light, the only big corporate news was Microsoft and OpenAI being sued by the New York Times over copyright infringement from its use of the NY Times content to train its AI models. In the markets, most sectors were higher led by healthcare and real estate with energy the underperformer due to lower oil prices. Volume was 39% below the 30-day average with stocks moving 0.14% higher.
Markets traded in a tight range on Thursday and were mostly higher, but if there was any underperformer it was small caps by a small amount. Data included jobless claims which rose slightly but are still relatively low and pending home sales that were below expectations despite a sharp decline in mortgage rates over the past two months. Treasury yields move a little higher due to a weaker auction of 7-year notes, while stocks were mostly higher as the S&P 500 gained 0.04% and only 0.2% off the record high close on another low volume day.
Friday was just about as uneventful as the prior three days with no significant headlines and another very low volume day. Geopolitics was more in the news with Russia launching drone attacks on Ukraine in the largest since the invasion, and ongoing tensions in the Red Sea with uncertainty of the impact on shipping. Stocks were down more than 0.5% at the lows but ended up closing down 0.28% with small caps seeing weakness with a 1.52% decline.
All week stocks traded with volume about 30% below the 30-day average and were higher overall due to a lack of catalysts. Treasuries were relatively unchanged as well with yields moving slightly lower, more so along the shorter end of the curve – the 2-year yield fell nine basis points to 4.25% while the 10-year fell two basis points to 3.88%. Gold saw a slight increase of 0.3%, the dollar index fell 0.4%, and oil fell 2.6% in an up and down week. Stocks were driven higher mostly by value, offset by declines in small caps, with the major indexes finishing as follows: Dow +0.81%, S&P 500 +0.32%, NASDAQ +0.12%, and Russell 2000 -0.34%.

Recent Economic Data

  • Home prices continued to accelerate heading into the latter part of fall, according to the latest data from the S&P Case Shiller Home price index. The index shows home prices rose 0.6% in October for the ninth consecutive monthly increase, which comes after seven straight declines that ended calendar year 2022. Home prices are now up 4.8% from a year ago, up from the 4.0% 12-month rate from September, and are up 6.9% from the lows in January, and 46.8% from pre-pandemic levels. Detroit was the fastest growing market with a 8.1% annual gain with San Diego and New York the next two, while Portland still is the slowest with a 0.6% decline in prices. Cleveland area has seen a 6.4% increase in home prices over the past year.
  • One of the main drivers of inflation, the supply of money – measures the amount of money circulating through the US economy, has seen a decline in recent months, but the latest data for November saw a slightly uptick in the money supply. The supply of money grew 0.2% in the month after declining 13 of the past 16 months. The money supply is down 3.0% from a year ago and down nearly $1 trillion from the highs July 2022, or 4.3%. Despite the decline, money supply is still up nearly 35% from pre-pandemic levels, one of the main sources of inflation, and with the record decline of 4.3%, that is more likely than not to lead to a decline in economic activity.
  • For the week ended December 23, there were 218,000 new unemployment claims, which was up 12k from the prior week, with the four-week average relatively unchanged at 212,000. The number of continuing claims rose slightly to 1.875 million, with the four-week average down 12k to 1.865 million.
  • Pending home sales were unchanged in November matching the lowest level since mid-2020, and down 5.2% from a year earlier, according to the pending home sales index by the National Association of Realtors. The number is based on signed contracts during the month, so gives us the most current look on buyers and does include signings when rates were coming down from a 23 year high they reached in October. The indicators on showings saw a “surge of interest” however.
  • Mortgage rates fell for the ninth consecutive week, dropping from a 23 year high of nearly 8% late October, to the lowest since May. According to Freddie Mac’s mortgage survey, the average prime rate on a 30-year loan was 6.61% last week. The rate has ranged from 6.09% to 7.79% in 2023.

Other News

  • Microsoft and OpenAI are being sued by the New York Times over copyright infringement. The NY Times claims the companies have illegally used content including millions of articles from the newspaper to train its AI models. NY Times said it first approached the companies in April to find a solution over their use of its intellectual property in the use of AI models, but all sides failed to reach a solution.
  • Nvidia unveiled its new GPU, the GeForce RTX 4090D, that was designed specifically for China as a workaround the to export restrictions recently put in place on advanced chips. This is just two months after the restrictions went in place, which at that time Nvidia said it did not expect a “meaningful” impact on financial results.
  • Mastercard SpendingPulse readings show retailers’ sales (includes in store and online) grew 3.1% for this year’s holiday shopping period which is measured November 1 to December 24. Subtract out higher prices from inflation and real, inflation adjusted, retail sales were flat at best.

The Week Ahead

After several weeks of quietness in the markets, we expect volatility to pick back up in the weeks ahead. The focus this holiday-shortened week will shift back to the labor market. There will be several data releases on the jobs market including job openings on Wednesday, which are expected to remain steady near a 2-year low of 8.750 million, jobless claims and the ADP payroll numbers on Thursday, and the Department of Labor’s employment report on Friday. Economist’s consensus estimate sees another 160,000 jobs added in December with the average wage up 3.9% in 2023. Other data releases include the PMI manufacturing index and construction spending on Tuesday, the ISM manufacturing index and 2023 vehicle sales on Wednesday, and factory orders and the non-manufacturing ISM index on Friday. In addition, the meeting minutes from the recent FOMC meeting in December will be released Wednesday afternoon. After a break in earnings reports from the holiday, several companies will release latest quarterly results this week including Conagra Brands and Walgreens on Thursday and Constellation Brands on Friday. There are a couple public appearances scheduled by Fed policymakers, but lighter than normal and occurring in the second half of the week.