2023 In Review and 2024 Market Outlook

For most investors, 2023 marked a much-needed comeback when it came to both stock and bond market performance after a brutal 2022.

Bolstered by the combination of a solid economy, better-than-expected corporate earnings, and an apparent end to the Federal Reserve’s interest rate hikes, stocks rallied 25% in 2023. Technology stocks (and growth stocks more broadly) jumped thanks to expectations of multiple Fed rate cuts in 2024, along with the emerging boom in artificial intelligence technologies.

Meanwhile, bond investors breathed sighs of relief after avoiding an unprecedented third straight year of losses.

As 2024 gets underway, what’s the outlook for the stock and bond markets? What stock sectors are most attractive? What should investors do from here? We’ve gathered insights and perspectives from analysts and specialists about market performance, individual stocks, sectors, and mutual funds.

2023′s Stock Market Performance, the Economy and Outlook

Investors went into 2023 worried about inflation and expecting a recession by the second half of the year.

Instead, inflation has cooled and the economy remained solid despite the first-quarter regional banking crisis, which sparked fears of a credit crunch. While the Fed raised interest rates four times over the year, at their December meeting, officials signaled that no additional increases are expected and they will likely lower rates in the coming year.

Heading into 2024, debates are focused on whether the economy will continue to avoid recession, whether inflation will stay on its moderating path, and whether the Fed will cut rates as aggressively as investors currently expect.

Here’s our look at the big market and economic trends from the fourth quarter of 2023 and Morningstar’s market outlook for 2024 and beyond:

Q4 2023 Stock Performance and Sector Outlooks

What stocks have done best in 2023? Which have taken the biggest beatings? Which sectors and stocks should long-term investors now be looking at?

Here we take a deeper dive into how various sectors and individual stocks performed in 2023, along with the outlook for the first quarter and top stock picks from Morningstar’s analysts:

2023 Mutual Fund Performance and Top Picks for 2024

For mutual fund investors, the main story in 2023 was the reversal of fortunes seen by stock funds from 2022. Funds focused on growth stocks left other strategies in the dust, bouncing back from the prior year’s massive losses. Meanwhile, value funds lagged.

For the most part, bond funds avoided an unprecedented third straight year of losses, thanks to the fourth quarter’s big rally and drop in bond yields.

Here’s Morningstar’s take on 2023′s stock and bond fund performance, along with other key trends:

Best Investments for 2024

With 2023 in the record books, how should investors position their portfolios for 2024? Our experts highlight adjustments to portfolios worth considering as the new year gets underway and offer up opportunities among undervalued stocks for long-term investors.