Markets began to sniff out the aforementioned Fed pivot well ahead of their December meeting. By November, the stock market was beginning to price in several rate cuts for 2024. The S&P 500 Index ran up over 11% in the fourth quarter and finished the year up over 26% as the odds of a soft landing increased.
The S&P 500 Index was led throughout the year by the so called Magnificent Seven, comprised of Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla. These seven stocks now account for over 30% of the large-cap domestic index. The forward Price to Earnings ratio is once again trading a full standard deviation above average on the recent gains. As we have noted in previous bulletins, we view this segment of the market to be a little pricey and prefer other, less favored, stocks.
Small-cap stocks and international issues performed well in 2023 but continued to lag the domestic large-cap index. Small stocks as represented by the Russell 2000 Index were up nearly 17% and international stocks returned over 15% as represented by the MSCI ACWI -ex US Index. The Russell 2000 Index outperformed the S&P 500 for the fourth quarter with a 14% return for the three months. It is too early to determine if this is the start of a longer-term trend, but we continue to favor these segments of the market that trade at a discount to their long-term valuation levels.
The S&P 500 Index was led throughout the year by the so called Magnificent Seven, comprised of Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla. These seven stocks now account for over 30% of the large-cap domestic index. The forward Price to Earnings ratio is once again trading a full standard deviation above average on the recent gains. As we have noted in previous bulletins, we view this segment of the market to be a little pricey and prefer other, less favored, stocks.