The past year has been an eventful one in the global economy. In 2023, the Russia-Ukraine war accelerated the cost-of-living crisis that has plagued many nations across the world. It was also a year of banking failures, as otherwise strong banks in the U.S. and Switzerland collapsed.
The cryptocurrency world has also faced its own troubles with the closing of FTX, a top crypto exchange; the trial of its founder, Sam Bankman-Fried; and the recent resignation of Binance CEO Changpeng “CZ” Zhao after a federal investigation.
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In more recent weeks, artificial intelligence took center stage when Sam Altman, CEO of OpenAI, the company behind the very popular ChatGPT, was ousted (and later reinstalled), an event that intensified conversations around the game-changing technology.
Within the ups and downs of the global and U.S. economy in 2023, some assets and asset classes have maintained a positive trajectory, produced remarkable growth and made money for their investors.
Here are five top-performing assets that have turned in a very impressive performance in 2023 as of the Dec. 19 market close, as well as the economic dynamics that have been responsible for their success:
1. Technology stocks.
2. Consumer discretionary stocks.
3. Communications stocks.
4. S&P 500.
5. International stocks.
1. Technology Stocks
The Nasdaq Composite Index has grown by 43.3% year to date as of Dec. 19. Exchange-traded funds, or ETFs, in the sector have done remarkably well, such as iShares U.S. Technology ETF (ticker: IYW), which has returned 65.3% by market price year to date. Other technology stock funds, from ETF providers such as Vanguard, State Street Global Advisors and Invesco, have also produced incredible returns.
This should not be surprising given that many of the best-performing stocks in 2023 are either involved in artificial intelligence or technology services.
At No. 8 on the list, you will find AppLovin Corp. (APP), a platform where mobile developers can market their apps. There is also Nvidia Corp. (NVDA), the tech giant that produces specialized chips for AI-powered software and gaming platforms.
At No. 3 is Symbotic Inc. (SYM), which deals in supply chain automation and optimization using AI technology. Also among the leaders is Vertiv Holdings Co. (VRT), a provider of hardware, software and analytics for data centers and communication networks. And Palantir Technologies Inc. (PLTR), a big data analytics company in the commercial enterprise and federal government sectors, has also had a stellar year.
Analysts have attributed this incredible growth to various factors including the slowdown in interest rate hikes by the Federal Reserve, plus the growing interest in AI and its practical applications (stemming from the success of OpenAI).
The 2023 performance of technology stocks, following their poor performance in 2022, is proof that they should not be underestimated, especially given the great potential that technology holds for the future.
[READ: 5 Best Tech ETFs to Buy in 2024]
2. Consumer Discretionary Stocks
Consumer discretionary stocks performed poorly in 2022, ending the year with negative growth. The tides have turned in 2023, however, and consumer discretionary stocks are among the best-performing assets of the year. As an example, XLY, the consumer discretionary ETF managed by State Street, grew by 41.7% year to date as of Dec. 19.
Some of the stocks that have led this resurgence in consumer discretionary include PulteGroup Inc. (PHM), a homebuilder with a 128.1% year-to-date return; Royal Caribbean Cruises Ltd. (RCL), a cruise company that rose 150.6% year to date; Carnival Corp. (CCL), a leisure travel services company that produced 132.1% year to date; Booking Holdings Inc. (BKNG), a travel and restaurant online reservation company with a 74.4% return; and D.R. Horton Inc. (DHI), a homebuilder that raked in 70.1% so far in 2023.
The performance of consumer discretionary stocks depends on the spending on nonessentials in the economy. The good performance in 2023 can be attributed to the slowdown in rate hikes, the lower inflation rate in the second half of the year, low unemployment, real wage growth turning positive and other trends.
There is a saying that you should never bet against the American consumer, and 2023 has surely reinforced that perspective. Investors who have maintained a positive outlook on U.S. consumer spending have a reason to smile at the year’s close.
3. Communications Stocks
Communications stocks have also proven resilient in 2023. Communication Services Select Sector SPDR Fund (XLC), for example, has grown by 40.9% year to date as of Dec. 19.
Alphabet Inc. (GOOG, GOOGL), Meta Platforms Inc. (META) and Netflix Inc. (NFLX) are some of the key players in this sector, and they have all had an impressive 2023, with 53.7%, 191.1% and 67.9% gains, respectively.
Part of Alphabet’s growth has been driven by its investment in AI. It has announced its own version of ChatGPT — Bard — among other generative AI products. And this is only a part of its huge investment in AI and machine learning over the years.
Meta has also gone on a cost-cutting journey even while it keeps investing in the AI, augmented reality and virtual reality space. Users are increasing, advertising revenue is recovering and Facebook Reels is doing well.
Netflix has been seeing a surge in the number of paid users as it cracks down on password sharing while introducing paid sharing as an alternative. The ad-based membership tier has also helped improve revenue.
Just like consumer discretionary, the communications sector had a poor 2022. However, improved economic prospects, the impact of AI, spending cuts and a rebound in advertising spend have made communications stocks one of the best-performing asset classes of 2023.
[What Is the Average Stock Market Return?]
4. S&P 500
If you had invested only in the S&P 500 Index in 2023, only those invested solely in technology, consumer discretionary and communications stocks would have done better.
We are identifying the S&P 500 as an asset class because the rise of passive investing has meant that some investors put their money only in the S&P, often via ultra-low-cost funds that track the index. Given the inability of the average investor to beat the index, even top investors like Warren Buffett have advised investing in the S&P 500.
The S&P 500 has returned 24.2% year to date as of Dec. 19, and the three asset classes identified above have been the best contributors. On the other hand, energy, health care, consumer staples and utilities have had a poor year.
The index’s strong performance has reinforced the advantages of low-cost passive investing for investors who have stayed committed to that strategy.
5. International Stocks
International stocks have done pretty well in 2023, though the S&P 500 and stocks in top-performing U.S. sectors have outshined them. IShares MSCI ACWI ETF (ACWI), an international ETF managed by BlackRock that invests in stocks in developed and emerging countries, has returned 21.6% so far in 2023.
If you remove the U.S. effect, the returns are lower but positive. Vanguard Total International Stock Index Fund (VXUS) is an ETF that invests in emerging markets and developed markets, excluding the U.S. The fund has returned 13.9% year to date by market price. Vanguard Developed Markets Index Fund (VEA), an international stock ETF that focuses only on developed markets (ex-U.S.), has returned 16% as of Dec. 19.
Emerging markets have not done as well, with VWO, Vanguard’s emerging-market ETF, delivering 7.6% year to date (though its iShares counterpart, IEMG, was able to add 9.5%). Still, that’s not a bad return considering money market funds paying about 5% are in vogue now, albeit with much lower risk.
Regardless, this shows that although non-U.S. markets might have provided some diversification benefits, the U.S. market has been the best bet for investors in 2023. In short, investing only in the S&P 500 has been more profitable than even the best-performing developed markets ETF (which includes the U.S.). When you remove the U.S., the gap gets wider, and it’s the widest with emerging-market stocks.
This reflects the fact that some of the most productive and innovative companies in the world are in the U.S.
Takeaway
Since past performance is not a predictor of future performance, it is possible that the same list assembled next year will look completely different. Nevertheless, some general insights apply irrespective of the year in review.
First, the stock market reflects broader macroeconomic realities. We have seen how interest rates, inflation, consumer confidence and other metrics affect the performance of the stock market.
Second, innovation remains a major driver of stock prices. The growing attention to AI and its applications have led to a massive rise in technology and communications stocks in 2023. Investors, therefore, cannot ignore the direction of innovation and investment.
Third, it seems impossible to talk about investing strategy without discussing low-cost passive investing. The performance of the S&P 500 in 2023 is another indication that it should be taken seriously.
Finally, while diversification into other markets can provide some benefits, the U.S. remains desirable for investors seeking to build wealth.
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5 Best-Performing Assets of 2023 originally appeared on usnews.com
