December 2023 Market Review

Rip Van Winkle missed quite a change during his 20-year nap. If he had a relapse between January and December 2023, he would have never known the extent of surprises experienced over the year and the impact on financial markets. After all, the 10-year U.S. Treasury note closed 2023 at the same yield as year-end 2022. With 2022’s harsh financial returns in the rearview mirror, market participants entered the new year with cautious optimism.

Despite a year of consistent volatility, the 10-year yield finished the year at 3.88%, almost exactly where it started, after shifting 45 basis points (bps) lower in December. The shape of the Treasury curve was relatively unchanged as yields made a parallel shift lower following a modification in sentiment from the FOMC. The transition from hawkish to dovish communication from Chair Powell took the market by surprise, not only in the timing of the dovish comments, but also in the speed of the pivot.

The strong labor data seen in early 2023 continued to normalize, coming roughly in line with market expectations. Just under 200k jobs were added to nonfarm payrolls, while the unemployment rate remains healthy at 3.7%. GDP ticked lower to 4.9% and CPI continued to shift lower, providing the Fed with the clarity needed to forecast rate cuts earlier in 2024.

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