Allan Roth's 2023 Review—Markets, Lessons, Outlook
Against a bleak backdrop of war and division, ETFs have excelled in 2023.
With only two weeks left in the year, I thought I’d take a look at 2023’s performance and see what can be learned from it.
Overall, 2023 was a pretty awful year for the whole world. Internationally, the Ukraine-Russia war raged into its second year, while the Israel-Hamas war that broke out in October continues to escalate.
Domestically, the nastiness of American politics, and our ever-widening political divide show no sign of stopping. Though inflation has been declining, it’s still above the Federal Reserve’s target of 2% and our national debt spirals further out of control.
The market reacted to all of this depressing news by sending virtually every asset class up, as seen in this chart below.

U.S. stocks were again the star, turning in nearly a 25% total return. The return was anything but even, however. Research indicates that, historically, about 4% of publicly held companies typically result in the entire stock market's excess return above cash.
This year, the Magnificent Seven (0.2% of U.S. stocks) accounted for the vast majority of the return clocking in a 102.4% return and now accounting for nearly 25% of the value of the entire U.S. stock market.
Accordingly, the so-called overvalued large-cap growth Invesco QQQ Trust (QQQ) turned in a 52.9% return while the perceived bargain Vanguard Small-Cap Value ETF (VBR) turned in only a 15.5% return and the iShares Russell 2000 ETF (IWM) returned only 14.4%.
International stocks again badly lagged the U.S. returning 12.7%. Was it the turmoil overseas or the fact that none of the fantastic seven is foreign based? Quite frankly, I don’t know, but I will continue to invest globally, because there is enough risk in the U.S. that makes me want to diversify.
Bond ETFs
Bonds have so far turned in respectable returns with the Vanguard Total Bond Market ETF (BND) earning 5.1% and the iShares TIPS Bond ETF (TIP) up 3.9%. Rates rose during most of 2023, but bonds staged a rally in the past several weeks.
Even real estate investment trusts turned in a respectable 10.3% return in spite of huge vacancy rates in office buildings and the scarily termed debt bomb looming on the horizon as owners of these commercial properties have debt coming due that will need to be refinanced at much higher rates, just as profits and cash flows have plunged.
Precious-metal equities gained 8.0% as measured by the VanEck Gold Miner’s ETF (GDX), while the SPDR Gold Shares (GLD) gained 10.2%.
All of these returns pale in comparison with bitcoin, which is up a whopping 152.5% for the year. The ProShares Bitcoin Strategy ETF (BITO) clocked in a 140.3% return. It uses bitcoin futures contracts which create drag.
The Securities and Exchange Commission has so far declined to approve an ETF, though SEC Commissioner Hester Peirce says that a spot bitcoin ETF should have been approved years ago and that regulators have been standing in the way.
Lessons and Predictions
2023 is yet another year where markets fooled those experts who made confident predictions. Few predicted these great returns for U.S. stocks. Yet I’m going one step further in stating I can’t even explain the past. This isn’t the first year—think back to 2020 when the Vanguard Total Stock Market ETF (VTI) gained over 20% when there was no COVID vaccine in sight.
So if I can’t explain the past, how could I or anyone possibly try to predict the future? I can’t even tell you whether the final two weeks of the year will bring a Santa Claus rally or whether we will be left with lumps of coal. But I can make these three predictions for 2024:
- Money will flow to ETFs and asset classes that have the best performance.
- Those ETFs will likely underperform just as their assets peak and then investors will flee moving to the new ETFs with stellar performance.
- Those investors who embrace owning entire stock markets at the lowest cost and stick with disciplined rebalancing will outperform the vast majority of investors.
Admittedly, these predictions aren’t as exciting as forecasting a 2024 Dow 50,000, but these should be more useful. As I say, investing shouldn’t be exciting—it should be dull.
Here’s wishing you an exciting 2024—just not in your investing.