Graphic: Large-cap U.S. equity gains create high 2024 expectations
While many major equity indexes fell sharply in 2022, they rebounded last year, led by the S&P 500 and powered by the Magnificent Seven technology stocks. The index has a rich valuation, creating expectations of higher growth that may prove challenging in the near term should the economy slow.
S&P 500 leads: The S&P 500 led equity markets with a 26.3% return in 2023. Over 10 years, it has produced the highest absolute return and best risk-adjusted return compared with several major indexes. Year to date, the S&P 500 is up 0.3% through Jan. 10.
Equity index returns
Magnificent returns: The Magnificent Seven stocks, which make up 28% of the S&P 500, had returns ranging from 49% to 239% in 2023. This year, five out of the seven have outgained the S&P 500 Equal Weighted index.
2023 stock returns
Growth spurt: Growth stocks, measured by the S&P 500 Growth index, returned 30% in 2023, outperforming the S&P 500 Value index by 780 basis points. That's a reversal from the prior year, when growth stocks lost 29.4%, badly lagging value stocks' 5.2% loss
S&P 500 index returns and 10-year yield
Richer valuation: Last year's big gains caused the S&P 500's equity valuation to become richer compared with the end of 2022, with the index's price-to-earnings multiple increasing to 23 from 18. The index currently trades at a P/E of 22 as of Jan. 10. The average year-ending P/E since 2003 was 19.
S&P 500 index P/Es
Sources: Bloomberg, State Street Global Advisors, U.S. Department of the Treasury