Balance sheet of 2023 for equity investors: A review of the American and global markets.

Balance sheet of 2023 for equity investors: A review of the American and global markets.

According to a report by ch.marketscreener.com,
It's the last day of the last full trading week of the year - not a bad time to take stock of what 2023 has brought for stock investors. A recession that never was, a consumer that has proven nearly bulletproof in the face of high inflation and high interest rates, an unexpected boom in AI stocks and, buoying the market in the final weeks of the year, expectations of a steep decline in borrowing costs in 2024.

Market watchers have consistently pointed out that much of the S&P 500's 24% rise this year can be attributed to the stellar performance of Big Tech - and the AI ​​glitterati. But the equal-weighted S&P 500, which excludes megacaps, is expected to gain nearly 11% this year, most of which came in November and December.

The S&P will gain 0.5% this week. That may seem a bit flimsy for a "Santa Claus rally," but it would be the index's eighth consecutive week of gains - the longest stretch since late 2017. And such momentum has never been seen in stock markets in the run-up to Santa Claus.

The longest streak of weekly gains before the Santa Claus rally – gains in the week leading up to December 25 – was a five-week stretch in 2019.

The biggest two-month drop in 10-year Treasury yields since 2008, which has created a theoretical sweet spot for stocks, is supporting this rally.

Inflation numbers later on Friday could add extra shine to this year's holiday rally, but they are unlikely to change the view that the Federal Reserve could cut interest rates to 3.50-3.75% by the end of next year from the current 5.25-5.50%.

The core personal consumption expenditures index, the Fed's preferred measure of inflation, was expected to have risen at an annual rate of 3.3% in November, up just 0.2% from the previous month.

Should the index reach an annual rate of 3.3%, it would be the lowest since April 2021, but still more than double what it was in February this year, before the core PCE index surged and was above the Fed's 2% target.

The stock market appears satisfied that inflation is under control. The question is rather how much more the price pressure can cool down as a result of falling energy costs worldwide and not as a result of the emerging economic weakness. Even Santa Claus can't hand out crystal balls to answer this question.

Key developments that should provide more guidance to US markets later on Friday:
– Personal consumption and expenditure index in November
– Building permits in November
– University of Michigan: Final mood in December
– New home sales in November
– Durable goods orders in November

The Federal Reserve's expected cut in U.S. interest rates could lead to a sustained recovery in financial markets. This would have a positive impact on the stock markets and could encourage investors to invest more in risk assets. In addition, the inflation rate could calm down, which would benefit companies and consumers as the cost of credit and financing would fall. Overall, current developments point to positive momentum for the markets, particularly with regards to the Santa Claus rally.