After Twists, Turns, a Banner Year for ETFs

On the 12th day of December, the markets gave to me… a reminder of the key events and numbers that defined the investment year 2023. 

It was unique, it was frustrating for many, and it was a banner year for the ETF industry. And it certainly was better for investors than the twin declines in stocks and bonds in 2022, even if the current year’s returns are a bit deceiving. More on that as part of this list, numbered from one to 12, for reasons that will be clear when you read below. 

1. Some $1 trillion in U.S. consumer credit-card debt. Actually, as of one month ago, it was $1.08 trillion. But at least the interest rate on that debt is “only” around 22%! Wall Street is divided about whether and when it will matter. 2023 was the year of sticker shock, but that’s all.  
2. Heartbreaking war zones. The battle in Ukraine and the recent eruption of the Israel-Hamas war has intermittently affected the markets and the military equipment supply chain. But the most important thing we can say about it is that the loss of human life all around has been the tragic story of 2023. 
3. Three straight poor years for bond prices. The iShares Core US Aggregate Bond Index (AGG) lost 2% in 2021 and 13% in 2022. This year, it was heading toward a third consecutive down year, and might still get there. It broke above zero only in mid-November. This should make investors think harder about the role of bonds in their portfolio. 
4. More Fed rate hikes. Following the seven hikes of 2022, the Federal Reserve wasn’t done this year. Maybe it finally is, but that’s a giant issue for 2024, so we’ll leave this one here for the moment. 
5. An interest rate of 5% on Treasuries. For the first time since March 2007, prior to the financial crisis, investors saw this number in a strange place: before the decimal! That has allowed asset allocators to shift toward the highest low-risk rates in a generation. 
6. ETF issuers hold more than 85% of U.S. ETF assets. This has helped the industry in the same way that having a few dominant “faces” among the crowd can bring more positive attention to the business. However, as discussed here in a set of articles on lesser-known ETFs, investors have many more funds to choose from than they may realize. That should be part of the industry’s continued expansion. 
7. The Magnificent Seven stocks. At least, that’s what the industry has crowned them. These giant, generational businesses dominated stock market performance to an extent not seen since the late 1990s. Let’s hope the follow-on year turns out better than 1999 did. 
8. The arrival of 8% mortgage rates. If T-bill and money-market fund rates were a boon to savers, this is the other side of coin. It has essentially frozen the housing market throughout 2023. 
9. Some $9 trillion in global ETF assets! When you’re etf.com, this is quite the affirmation of our enthusiasm for this industry, which is replacing mutual funds, step by step. In fact, nine is also the number of thousands of ETFs we’ll see listed globally some time next year, as the current figure is just a few hundred shy of 9,000. 
10. Volatility with the 10-year U.S. Treasury bond. It was off the charts in 2023 as it made stars out of previously pedestrian bond ETFs. Bonds acted more like stocks traditionally do this year than any time since the 1970s. And most of us know that only because we can Google it! 
11. So far, 11 stocks within the 30 in the Dow Jones Industrial Average are down year to date. The Dow reflects the broader market in that a handful of its members have had enormous gains, while more than one-third of the 30 stock index is still down for the year as of this writing. 
12. Twelve Fed board members who talk too much. That’s one person’s opinion, but one who remembers when the Fed just did its job quietly, and financial advisors and investors didn’t have to constantly mark their calendars for when a Fed board member was scheduled to give a mundane talk at an economics club. 

2023, what a year! A lot of economic and market performance numbers didn’t quite add up in the minds of some investors, but at least the above list does.