The year 2023 in US stocks: The "slap in the face" year—how the seven tech giants are turning the tide

2023 may be the most awkward year for Wall Street. At the beginning of the year, top investment banks such as Goldman Sachs, Bank of America, and JPMorgan Chase collectively turned bearish, predicting the S&P 500 index would end the year between 3,900 and 4,500 points. However, by mid-December, it surged past 4,700 points, making these institutions’ forecasts a laughing stock.

Even more ironic, these bearish voices were mainly based on one logic: the economy would fall into recession, and corporate earnings would stagnate. But the reality was completely opposite — U.S. stocks not only did not crash but also achieved their best gains in a decade driven by a series of positive factors.

Numbers Speak: The Victory Declaration of U.S. Stocks in 2023

As of mid-December, the three major U.S. stock indices advanced together:

• Nasdaq Index soared 40.77%, marking the strongest performance in recent years
• S&P 500 Index increased 22.60%, with heavyweight stocks providing significant support
• Dow Jones Index rose 11.90%, even surpassing the 37,000-point historic high

This performance is enough to make the bearish predictions at the start of the year pale in comparison. Compared to Wall Street institutions’ forecast targets, the actual gains exceeded the expectations of most.

Global stock markets also showed rare synchronized growth in 2023: Japan’s stock market surged 26% amid ultra-loose monetary policy; Taiwan’s stock market jumped 23 benefiting from the AI wave; Germany’s stock index rose over 20% amidst automotive industry difficulties, setting new historical highs.

The Five Major Turning Points of U.S. Stocks in 2023

Throughout 2023, U.S. stocks experienced a rollercoaster of five phases, each driven by different core factors:

Q1: AI Boom Ignites

OpenAI’s ChatGPT sparked frenzy around generative AI. Tech giants like Microsoft, Meta, and Google rapidly expanded into large language models. The seven tech giants collectively rose over 20% this quarter, with the Nasdaq posting its best single quarter since 2020, signaling a technical bull market.

February to March: Panic Erupts

Crises at Silicon Valley Bank, Signature Bank, Credit Suisse, and others triggered extreme market panic. Previously optimistic analysts began to worry that tech stocks had risen too much and diverged from fundamentals. Morgan Stanley’s chief strategist explicitly stated that the crazy rally in Q1 was unsustainable. Meanwhile, discussions about AI risks intensified — issues like AI’s impact on humanity, cyber fraud, and extreme misuse prompted thousands of tech figures, including Turing Award winner Yoshua Bengio and Elon Musk, to sign petitions.

Q2: Recovery Expectations Strengthen

Softening inflation data, the nearing peak of the Fed’s rate hike cycle, and improved corporate earnings reports renewed market confidence. The technology, communication services, and non-essential consumer sectors led gains. Goldman Sachs’ chief strategist at the time said concerns about recession had significantly eased.

Q3 to October: High-Interest Rate Stress Test

The 10-year U.S. Treasury yield soared to historic highs, pressuring tech stocks due to rising financing costs. Deteriorating Middle East tensions intensified risk asset sell-offs. Some heavyweight stocks reported poor Q3 earnings, further dampening market sentiment. Goldman economists warned that high debt financing costs could trigger a wave of corporate bankruptcies.

Q4: Soft Landing Expectations Confirmed

All signs shifted in the December FOMC meeting. U.S. Treasury Secretary Yellen stated that inflation was essentially under control, and the Fed’s dot plot indicated three rate cuts in 2024. This signal served as a strong boost to the market — the economy would not crash but also would not overheat, with the “soft landing” expectation sparking a final wave of gains in Q4.

The Seven Tech Giants: The True Heroes of U.S. Stocks in 2023

Data shows that about three-quarters of the overall gains of the three major U.S. stock indices in 2023 came from the seven tech giants. These companies, leveraging their early advantages in AI, became the core driving force of the entire market. Whether it’s Microsoft, Apple, or Tesla, they all hit new record highs during the year.

Wall Street’s New 2024 Predictions: From Cautious to Optimistic

Learning from 2023, Wall Street made new forecasts for the S&P 500 in early December. This time, most institutions turned optimistic (though still more conservative than actual performance):

• JPMorgan Chase: 4200 points (expecting economic slowdown but tight credit)
• Morgan Stanley: 4500 points (hope for corporate earnings recovery)
• Wells Fargo: 4625 points (expect increased volatility but supported valuations)
• Goldman Sachs: 4700 points (moderate U.S. economic expansion)
• Barclays: 5000 points (macro uncertainties have peaked, companies have adapted)
• Deutsche Bank: 5100 points (current valuations are not too high, earnings growth still possible)

It is worth noting that as December’s rally continues and giants like Apple keep hitting new highs, the accuracy of these predictions faces further tests.

Opportunities and Risks in 2024: AI to Take Center Stage

Industry consensus believes that 2024 will be the year of a real explosion in generative AI. Goldman Sachs predicts that a more powerful generative AI world order is forming, which will profoundly change economic growth, productivity, competitive landscape, national defense, and even human civilization.

But opportunities always come with risks. In 2024, U.S. stocks will still face: policy uncertainties from the U.S. presidential election, potential recession risks, and the possible escalation of geopolitical conflicts in the Middle East and elsewhere. These variables, along with continued tech stock performance, will shape the direction of U.S. stocks next year.