The Days That Moved the US Market in 2023

In 2023 the S&P 500 has bounced back from the difficult environment in 2022 that saw a decline of more than 19%. Year to date, the index has been closing with 132 positive days and 113 negative. Last year we saw 122 trading days with swings beyond 1%, and 2023 is looking to end around half of that number (20th of December the count was 63) which is more in line with the 10-year average of 59.

Key drivers for the large swing days have been mega cap tech stocks' performance, banking turbulence, and the Fed's inflation battle. These factors shaped the trajectory of market returns, where the top 10 performing days contributed an aggregate increase of 18.35% to the index, in contrast to the bottom 10 days, which saw a collective decrease of 16.20%.

This chart was created with Chart Creator in FactSet Mercury, our beta release of a Large Language Model-based knowledge agent. (Annotations manually added.) 

A Return to Normalcy in 2023

The year 2023 marks a return to normalcy in the S&P 500’s performance, with 132 positive days prevailing over 113 negative days. This is a notable shift from 2022, which saw a reversal with 144 negative days and only 108 positive, accompanied by a remarkable 48% of trading days experiencing swings greater than 1%. In contrast, the 26% of trading days with over 1% swings in 2023 brought the market's volatility closer to the 10-year average of 23%.

Seasonal Volatility Patterns

In line with a decade-long trend, the S&P 500 in 2023 saw the bulk of its volatility in the first quarter, with January, February, and March cumulatively accounting for 29 days with over 1% price movements. The pattern of heightened activity in the early part of the year was paralleled by a quieter summer, with July registering no days exceeding the 1% threshold and August only five, supporting the seasonal trend of reduced volatility during this period.

Traditionally, the summer’s calm can be attributed to lower trading volumes as market participants step back for holidays. October once again stood out with eight significant trading days, underscoring the historical trend of end-of-year market adjustments and reactions to fiscal and political developments.

The Influence of Federal Reserve Policy Rates

The Federal Reserve's interest rate policies have been a cornerstone for market movements in 2023. On January 6, we got our largest moving day. The S&P 500 climbed by 2.28%, reacting positively to signs that the Federal Reserve's rate hikes were effectively cooling the economy without triggering a recession. However, the market also felt the sting of rate hike concerns; on February 21, the S&P 500 fell by 2.00%, marking the worst performance of the year, largely due to apprehensions about further interest rate increases.

Throughout the year, Fed policy and inflation concerns were central to market sentiment, influencing six out of the 12 most volatile days. The Federal Reserve's proactive interest rate increases, initiated in March 2022, led to a reduction in year-over-year CPI inflation from a 9.1% peak to 6.4% by January 2023, and down to 3.2% by October. With inflation approaching the Fed's target, the pace of rate hikes slowed, with the FOMC enacting just four 25-basis-point hikes in 2023 and pausing further increases after July. This strategy indicates the Fed's measured approach in moderating policy to stabilize the economy while mitigating market disruption.

Top 10’s Contribution to S&P 500 Return in 2023

On April 27, the S&P 500 experienced the third-largest move of the year, climbing 1.96%, fueled by robust earnings from big tech. Meta led the rally, surging 14% following its earnings release that exceeded expectations, further helped by its strategic investments in artificial intelligence.

Year to date, the S&P 500's returns have been significantly shaped by the performance of the "Magnificent 7" along with Eli Lily and Broadcom. The top 10 elite group—which includes Apple, Amazon, Alphabet, A & C, Nvidia, Meta Platforms, Microsoft, Tesla, Eli Lily, and Broadcom—was instrumental in driving the index's returns with total contribution of 17.17%.

A comparative analysis from the past decade underscores the impact these top 10 companies had in 2023. They accounted for 75% of the S&P 500’s weighted average return, high above the 39% average from 2014 to 2022. This year's standout was Nvidia, with a rise of 229%, contributing 2.77% to the S&P's overall return. Nvidia's successful year can be largely attributed to its data centers business, which saw exponential growth due to the demand for advanced AI infrastructure.

The Banking Turbulence

The second worst performing day of the year came on March 9 when the S&P 500 endured a significant sell-off, declining by 1.85%. This downturn was largely attributed to growing concerns over the value of U.S. banks' bond portfolios, exacerbated by SVB Financial Group's announcement of a $1.75 billion common equity and $500 million convertible preferred offering.

The financial sector has faced a tumultuous year in 2023 and recovered its steep decline in the year's first quarter, reflecting the broader banking industry's challenges. Despite the early-year struggles, the sector demonstrated resilience, recovering to a 7.96% increase in year-to-date price performance and surging 13.59% from the end of October.

The banking crisis, marked by the collapse of several key banks, sent shockwaves through the sector. Losses in cryptocurrency, a downturn in bond and commercial real estate portfolios, and significant bank runs catalyzed the downfall of institutions like Silvergate Bank and Silicon Valley Bank, among others. The Federal Reserve's decisive actions, including providing emergency loans and securing deposit recoveries, were instrumental in stabilizing the financial sector during 2023's banking crisis.

This chart was created with Chart Creator in FactSet Mercury, our beta release of a Large Language Model-based knowledge agent.

What to Look Out For in 2024

Economic indicators will be pivotal, especially as economists project the Consumer Price Index (CPI) in the U.S. to decrease to 2.7% and the Federal Reserve's target rate to be at 4.50% by year's end. This decline in inflation could significantly impact market dynamics. Additionally, the performance of the "Magnificent 7" tech giants will be crucial, with a consensus estimate predicting an impressive average EPS growth of 27%. The potential decline in interest rates can also mean a more challenging year ahead for the financial sector, which tends to perform well with rising rates.

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