Stocks end 2023 near record highs, defying a year of higher rates

Stocks end 2023 near record highs, defying a year of higher rates

The last trading day of 2023 closed out with a sigh, as Wall Street took a breathe after a muscular year-end rally pushed stocks close to record highs.

The S&P 500 (^GSPC) ticked away from its all-time closing high of 4,796.56. The benchmark average decreased about 0.2% on Friday but managed to keep up a 9-week win streak. Meanwhile, the Dow Jones Industrial Average (^DJI) slipped just under the flatline, while the tech-heavy Nasdaq Composite (^IXIC) shed almost 0.6%.

While stocks finished the day in the red, the major indexes powered through a year of economic uncertainty. The Dow rose 13% for the year. The S&P enjoyed gains of 24%, and the Nasdaq swelled more than 40% in 2023.

The resilience of the stock market played out against the backdrop of an aggressive tightening campaign from the Federal Reserve. Central bankers set out to rein in historical levels of inflation. And while the Fed received criticism from some market observers for acting too slowly to grapple with pricing pressures, sentiment on Wall Street has been buoyed by hopes that the central bank is done with rate hikes.

As Yahoo Finance’ Josh Schafer reports, one of the main storylines 2023 will be remembered for is the economic downturn that never arrived. An array of economists — including those on the Fed’s own staff — had widely expected a recession this year as the central bank raised the cost of borrowing to cool inflation.

Typically, higher interest rates force consumers to cut spending and business to pull back since mortgages and other loans are costlier. But the economy proved more resilient than forecasts had expected. Many of the nation’s borrowers locked in lower interest rates before the Fed kicked off its monetary squeeze, largely insulating them from the central bank’s tightening.

Still, the widespread warnings of a recession may have played a role in encouraging more cautious behavior. Consumers and businesses were also bracing for tough times ahead. So while the recession predictions proved misguided, at least in the short term, they may have steered economic behavior away from a contraction.

Analysts disagree over what 2024 will bring, but the market is banking on a Fed posture that’s far less restrictive next year.

Tech stocks, which have driven much of the growth the market has enjoyed in recent months, are seen by bullish analysts as leading the way to even more gains in the new year.

Stocks end 2023 near record highs, defying a year of higher ratesStocks end 2023 near record highs, defying a year of higher rates

Traders work on the floor of the New York Stock Exchange (NYSE). (ANGELA WEISS/AFP via Getty Images) (ANGELA WEISS via Getty Images)

“As the ball drops on Times Square to end 2023 heading into 2024 we believe the tech sector is set up for an acceleration of spending around cloud and AI spending that we believe is still being significantly underestimated by the Street,” said analysts at Wedbush. “In our opinion the new tech bull market has now begun and tech stocks are set up for a strong 2024.”

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.

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