The U.S. stock market performed extremely well in 2023 and for the 5-year period ending December 31, 2023. Stock market performance in 2023 was a reflection of the relatively strong U.S. economy. The S&P 500 index increased 24.2 percent, more than twice the long-run average return on U.S. large-cap stocks. For annualized returns over the 5-year period ending December 31, 2023, the U.S. S&P 500 index ranked first among the selected indexes, with an annualized return of 13.7 percent. In the U.S., the strength of the 2023 stock market is further evidenced by the performance of technology stocks. The NASDAQ Composite, an index comprised of over 3000 companies listed on the NASDAQ stock exchange and heavily weighted toward technology, increased a whopping 43.42%. The annualized return over the 5-year period ending December 31, 2023 was 17.74% for the NASDAQ. Although financial markets do not like uncertainty, the U.S. stock market remained resilient in the first quarter of 2024 with both the S&P 500 and NASDAQ achieving record highs as economic growth continued. However, plenty of uncertainty remains for equity markets, including the U.S. election, interest rates, and global conflicts. Economic Growth Economic growth is measured by changes in Gross Domestic Product (GDP), which is the value of goods and services produced in a given time period. After the economic decline in 2020, U.S. economic growth rebounded and included surprisingly strong growth in 2023, contributing to the what was arguably the strongest global economy. The chart below shows the percentage change in GDP between the fourth quarter of 2023 relative to the fourth quarter of 2019 for G7 countries. The United States had GDP growth of 8.2 percent, almost doubling the GDP growth of Canada, which ranked second.
G7 Percentage Change in GDP Since Pre-Pandemic Level 4th Qtr. 2023 vs. 4th Qtr. 2019 (Sources: OECD; UK House of Commons)
The table below shows how changes in the four components of Gross Domestic Product (GDP) contributed to the change in U.S. economic growth since 2017. Although rising interest rates slowed the economy in the first half of 2023 relative to the second half of 2022, moderate economic growth of 2.2% and 2.1% occurred in the first and second quarter, respectively. Third quarter economic growth was exceptionally strong at 4.9%. While investment spending fluctuated with rising interest rates, personal consumption remained robust and was the primary driver of economic growth in 2023. Economic expansion continued in the first quarter of 2024 with the economy growing at 1.6%, with personal consumption once again the primary factor driving economic growth. Personal consumption accounts for approximately two-thirds of GDP, and personal consumption has been the key, consistent, driver of economic growth during the economic recovery, contributing positively to GDP growth since the third quarter of 2020.
Central Wisconsin Report - Spring 2024
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