Economy & Markets

2023 marked an inflection point for markets with strong gains across both stocks and bonds. The S&P 500, Dow, and Nasdaq generated exceptional returns of 26.3%, 16.2%, and 44.7% with reinvested dividends last year, respectively.

The bond market has had a better year in 2023 despite ongoing swings in interest rates. The U.S. Aggregate bond index has rebounded 2.7% year-to-date after briefly hovering in the red a few months ago.

The stock market has been supported by a healthier-than-expected economy this year, generating returns that have helped many portfolios to partially recover from last year's bear market.

While it may not feel like it, investors truly do have much to be thankful for this holiday season.

The author F. Scott Fitzgerald once wrote that "the test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function." This concept, often referred to as "cognitive dissonance," is something all investors must grapple with on a regular basis.

At its September meeting, the Federal Open Markets Committee kept rates unchanged with a target range of 5.25% to 5.50%, in a decision that was widely anticipated by investors. Still, markets responded negatively with bond yields jumping to levels not seen since 2007...

For patient investors with time horizons of years and decades, the primary drivers of portfolio returns are not day-to-day market fluctuations but the business cycle and other longer-term trends...

Financial markets have pulled back in recent weeks due to factors such as rising interest rates and uncertainty in China. So far in August, the S&P 500 has declined 4.8% while the Nasdaq, which consists primarily of technology stocks, has fallen 7.4%.

Despite the economic uncertainty of the past year, everyday individuals and households have been resilient. Consumer spending has remained steady in the face of high inflation, rising interest rates, housing market challenges, and layoffs in sectors such as tech.

Market and economic expectations have shifted 180 degrees since the start of the year when many investors expected a recession and prolonged bear market.

At its June meeting, the Fed decided to hit pause on rate hikes after more than a year of rapid monetary policy tightening. Since last March, the Fed has raised rates 10 times from zero to 5%, making this the second-fastest rate hike cycle in history.

Investors have grappled with market and economic challenges this year ranging from Fed uncertainty, stubbornly high inflation, the possibility of a recession, a banking crisis, the debt ceiling, ongoing geopolitical tensions, and more.