2023 fourth quarter | Market commentary and investment performance (October – December)

What we saw: 2023 stood in stark contrast to 2022 when markets wrestled with the prospects of prolonged inflation, an aggressive rate-raising campaign by the Federal Reserve and persistent calls for an economic recession that has yet to materialize. Stocks and bonds rallied over the final two months of 2023 following the Federal Reserve’s announcement that no additional rate hikes were necessary and rate cuts could begin as early as mid-2024. 

It is clear US domestic markets are almost singularly focused on inflation and interest rates as evidenced by the correlation between the Consumer Price Index (CPI), Federal Reserve interest rate moves, and asset prices. CPI began 2023 at an elevated rate of 6.4% and asset prices rallied through the first half of the year as CPI subsided below 4%.  

However, stock prices resumed a downward trend following the July Fed rate hike, pausing what had been an upward trajectory. The Fed cited a “higher for longer” stance on inflation and left the door open for future rate hikes. The Fed’s outlook changed again in early November when it affirmed a belief that inflation was moderating to historical and healthy levels, and stock prices rallied hard. 

An encouraging sign of the late year rally was broader market participation from international stocks and domestic stocks outside of the seven stocks that represented the lion’s share of broad index returns during 2023: Apple, Microsoft, Amazon, Nvidia, Google, Tesla and Meta. However, most broad index gains in 2023 can still be attributed to these seven equities.  

International markets started to rally in late 2023 as global central banks also began to end rate increase cycles and the US dollar weakened. For the first time in decades, short and mid-term duration fixed income yields offered an alternative to equities. 

Looking forward: In early 2024 it is evident that US markets are reacting strongly to both leading and lagging economic indicators of inflation such the Producer Price Index (PPI) and CPI. Leading economic indicators still point to the likely scenario of a mild contraction (recession), while lagging indicators are still generally positive, but weakening, following the Fed’s intentional attempt to slow down the economy to combat inflation. 

There is divergence between the outlook for the economy, still anticipating recession, and corporate earnings, which are more sanguine. Stock prices are primarily based on corporate earnings but many market analysts believe corporate earnings outlooks don’t adequately capture the impact of a slower US economy, global headwinds, higher borrowing costs, and a tighter labor market. US equity returns will likely continue to be driven by inflation and associated monetary policy reaction in the short term. 

Developed international markets have a similar outlook to US markets, whereas emerging markets are still viewed as risky, given the influence of China on most emerging market measures. Elevated interest rates in high quality fixed income continue to offer an alternative to stocks and diminish the need to take on additional exposure risk to generate returns. 

Regardless of short-term dynamics, NCCF’s approach of holding diversified quality assets are essential regardless of current conditions and offer the best opportunity to capture most market increases while minimizing downside volatility and risk over the long term.  

NCCF investment performance: Investment results were positive in 2023 and a much-needed recovery from 2022. Most NCCF managers were squarely in double digit year-to-date returns. On a rolling one-year basis, the NCCF Investment Fund trails the Broad 70/30 benchmark, returning 13.8% and 17.1% respectively. On the quarter, the NCCF Investment Fund returned 7.6% trailing the Broad Benchmark return of 9.8%.  

NCCF’s investment objective and approach: Prudent investment stewardship is essential to our mission of building long-term charitable assets for the benefit of our communities. Our primary investment objective is to preserve and protect historical endowment contributions over an indefinite time frame, while providing an average return that covers a 5% annual distribution, average 1% NCCF support fee and inflation. 

Additional market commentary is available from NCCF’s investment advisor, Graystone Morgan Stanley. For investment information specific to your fund, please contact your NCCF Donor Engagement Officer or send an email to support@nccommunityfoundation.org. 

1 year3 years5 years10 years
All Managers (Net Weighted)15.9%3.4%8.7%6.3%
NCCF Investment Fund13.8%2.9%8.1%5.6%
Other NCCF Managers (Average) 15.5%4.4%9.2%6.5%
Benchmark – Broad 70/3017.1%3.1%8.7%6.3%
Benchmark – NCCF Blended Index 16.5%3.8%9.5%7.2%
Notes: Multi-year percentages are annualized. Returns are net of investment fees. 
Benchmark – Broad: This benchmark is a general approach to investment. 70% of the MSCI All Country World Equity Index and 30% of the Bloomberg Barclays Aggregate Bond Index.  
Benchmark – Blended: This benchmark takes a more diversified approach to investment. 35% R1000, 15% Russell Midcap, 5% R2000, 10% MSCI EAFE Net, 30% Barclays Govt/Credit Bond, 5% FTSE Treasury Bill 3 Month.