2023 was quite the year – a continuation of the post-pandemic times that have broken pretty much every economic “rule.” I could easily write a ten thousand word essay on everything that happened, but let's face it, as we are all counting down to a long holiday weekend full of time with family & friends, gift giving & receiving, great food (and potentially some spiked winter drinks), nobody would want to read that.
Instead, here are five charts that spotlight some of the biggest stories of the year.
US Banking Crisis
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In March, the US faced its biggest banking system scare since the 2007-2008 financial crisis. Led by the collapse of three large banks (Silicon Valley Bank, Silvergate Bank, and Signature Bank), many individuals became worried about what is generally considered one of their safest assets – cash in the bank. Consumers and corporations alike became hyper aware of where their money is kept and how it is protected. As the chart above shows, deposits across the banking system took a dive as everyone waited to see how it all played out. Although, it seemed a lot scarier at the time than it does now, with the benefit of hindsight, this mini “crisis” made savers focus on where their money is kept.
Money Market Gold Rush
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Demand for money market funds exploded in 2023. Deposits in money market funds rose from around $1.2 trillion at the start of the year to around $1.7 trillion as of November. That is an increase of over 40%. This is likely due to a combination of events:
- As mentioned above, uncertainty around bank deposits had savers looking for alternatives.
- The Federal Reserve raising short term interest rates north of 5% for much of the year allowed money market funds to pay similarly high rates that far outpaced bank savings account and CD rates.
- Stock and bond markets were rough in 2022. In times of economic and market uncertainty, people flock to safety. Earning a safe 4.5%+ seemed like a good trade off to many. Especially after watching their investments decline the year before.
AI Stocks to the Rescue?
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Sometimes, investors just need something to believe in. 2022 was pretty discouraging. No matter what good news came out, the US stock and bond markets seemed to ignore it and remained in a steady decline all year. On November 30, 2022, OpenAI launched its groundbreaking technology – ChatGPT. Then, seemingly overnight, a technology that has been around for multiple decades became all the rage. Within months, nearly every company pitched themselves as the biggest benefactor to the AI boom. And as the chart above shows, many of these companies were rewarded for doing so. (The orange line represents a basket of Artificial Intelligence stocks, the purple line represents the S&P 500)
The Magnificent Seven.png?width=1265&height=654&name=FAI%2012.22%20(4).png)
Speaking of companies that took advantage of the AI boom, perhaps some of the ones that benefited the most were some of the biggest companies in the world. If you turned on CNBC (or really any financial news outlet) for at least 30 seconds this year, you probably heard the term “Magnificent Seven.” This has been coined to represent the seven largest publicly traded companies in the US that also happen to be among the best performing stocks for the year – Nvidia, Meta (Facebook), Tesla, Amazon, Microsoft, Apple, and Alphabet (Google). At the time of this writing, the S&P 500 is up around 24% for the year. The lowest performing of these seven is Apple, which is up two times that amount, at nearly 52%. Will this trend continue? Will the other 493 companies start to pull their own weight? We will find out in 2024.
Falling Inflation Amid Steadily High Interest Rates
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We couldn’t have a recap of 2023 without talking about inflation and interest rates. This point has been belabored enough this year. I won’t spend much time on it. The takeaway: inflation calmed down, interest rates remained high, and the economy is still on firm footing. It is a beautiful thing.
Financial Planning/Investment Strategy Corner:
Gifts That Keep on Giving
Have a kid or grandkid that already has everything? Consider a financial gift other than a card full of money:
Roth IRA funding - for kids under the age of 18 with earned income, a custodial Roth IRA can be established and funded for the kid’s benefit. Contributions can be made up to the amount of income they earned for the year or $6,500 for 2023, whichever is less. Contributions for 2023 can be made until April 15, 2024. This is a great way to kick start their retirement savings and give them valuable experience with saving and investing.
Contribute to their 529 education savings plan – planning for college expenses is worrisome for all involved. 529 plans are a great way to save for mounting education costs. Legislative updates over the past few years have expanded benefits and no longer requires withdrawals from non-parent owned accounts to be reported as student income. Learn more about 529s on our blog! RSWA Blog – It Takes A Village
Ok, maybe get them the new video game or candy, too. They might be a little disappointed when they open a Roth IRA statement.
Quick Hits – Holiday Version:
- Top 100 Christmas movies – How many do you plan to watch this weekend? IMDB – Top 100 Christmas Movies
- Real or Artificial? The economics behind Christmas trees ScienticAmerican.com
- Already owning Thanksgiving, the NFL is taking over Christmas, too The Athletic
- Keep everyone entertained with these Christmas games The Pioneer Woman
From the whole RSWA team, we hope you have a Happy Holiday!
Quote: “Merry Christmas ya filthy animal.” – Home Alone 2
Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!
