The difference that a year can make never ceases to amaze me. Whether it’s the development of a new hobby, the shocking amount of space between tick marks on my children’s growth chart in our kitchen, or the continued increase in the number of gray hairs on my head, 12 months is enough time for real change to occur.

With respect to financial markets, 2023 provided investors with a completely different experience than the turmoil and challenges of 2022. That’s not to say that last year wasn’t without its own set of challenges: we started the year with many economists predicting a recession; we experienced continued increase in interest rates by the Federal Reserve; a regional banking crisis erupted; political tensions flared over the election of a new Speaker of the House of representatives as well as over debates on a government shutdown, to name a few. These were just domestic factors; as always, international events brought economic repercussions as well.

On the flip side, inflation slowed and fell to near targeted levels; after raising rates an additional 1%, the Federal Reserve paused its tightening of the money supply; the job market remained strong; and the economy continued to grow steadily.  As with any year, there will always be events which positively and negatively impact markets. In 2023, numerous positive inputs helped shape a successful year for diversified investors.

In stock market news, one of the largest stories throughout 2023 related to the group of U.S. mega-cap stocks known as the Magnificent Seven. These seven companies (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) rode a wave of excitement and enthusiasm tied to ongoing advances in technology connected to artificial intelligence (AI), like ChatGPT, which translated into incredible performance of the stock in these companies.

With all the attention these stocks garnered through their incredible run in 2023, the context of their performance beyond the calendar year was oft ignored. By zooming back just one year and including the 2022 performance of these magnificent companies, we see a starkly different picture emerge. In fact, over this two-year period, as shown in the chart, as we see how these companies performed compared to broader market benchmarks like the S&P 500 and its value-oriented counterpart, the S&P 500 Value, perhaps Middling Seven is a better label.

Data represents past performance. Past performance is no guarantee of future results. Table is for illustrative purposes only. Returns are based on S&P 500 Total Returns and S&P 500 Value Stocks for the calendar years of 2022 and 2023. Source: Morningstar Direct

I say that with my tongue firmly in my cheek, as these are important companies that continue to lead innovation in so many parts of our world. But that doesn’t mean their stock returns will always be especially noteworthy.  As we sit today, two months into 2024, the performance of this group is split with some down and some up, what you may expect from any random chosen cohort of stocks.

It’s also very important to remember that it’s not only the level of returns that an investor experiences that matters, but how one experiences them. The how relates to key factors such as portfolio stability, the sustainability of cashflows through retirement, the impact taxes have on distributions, and the emotional toll of experiencing volatility.

Something we know for sure is that future events and the market’s response are unpredictable, and no pollster or pundit has a better crystal ball than the next. So, as you experience the remainder of 2024 and encounter the latest prognostications about the direction of interest rates, projections on the growth of the economy, predictions on stock market returns, or peruse the most recent presidential polls, please know that whatever is happening in the headlines, our team is always working on your behalf to best position you to reach your goals.

NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.