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  • Writer's pictureYetnesh Dubey

Tenjin-AI Economic Rewind 2023: The Year That Was And Wasn't

Welcome to the first ever Economic Rewind by Tenjin-AI, where look back at the market stories that made top-headlines everywhere. The S&P 500 concluded the year with a remarkable nine-week winning streak, marking its longest series of weekly gains since 2004. Amid this surge, Big Tech stocks propelled the Nasdaq Composite to its most successful year since 2020, fueled by burgeoning enthusiasm in artificial intelligence. The S&P 500 narrowly missed setting a new all-time high, ending the year up 24.2% at 4,769.83. It came within striking distance of its record close from January 2022. Meanwhile, the Dow Jones Industrial Average posted a modest year-end gain of 13.7%, achieving a new record in 2023. The Nasdaq Composite, despite a slight dip in the last session, saw a substantial annual rise of 43.4%, highlighting a robust year for technology stocks.

Economic Rewind 2023: Banking Crisis Averted

Economic Rewind 2023: US Banking Crisis
America's banking crisis visualised

2023 nearly became the year America witnessed a major banking crisis. In a brief period in the spring, several renowned regional banks, including Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank, collapsed. These failures spread across different regions, and stemmed from unique challenges, shaking the financial markets and public confidence. The contagion fear loomed large, indicating potential widespread economic impacts.

SVB, a pivotal bank for tech startups, declared insolvency on March 10, triggered by the massive withdrawal of $42 billion in a day after announcing significant losses. It was later acquired by First Citizens Bank. Signature Bank, focused on real estate, private equity, and cryptocurrency, fell under the receivership of the FDIC due to regulatory issues, and it was eventually bought by New York Community Bancorp. First Republic Bank, despite receiving a $30 billion liquidity boost from major banks, succumbed to the pressures of high loan-to-deposit ratios and customer withdrawals, leading to its acquisition by JPMorgan Chase.

In response, the Federal Reserve initiated the Bank Term Funding Program, offering emergency loans to distressed banks and signaling a potential end to rate hikes to stabilize the sector. Remarkably, the Fed admitted to oversight shortfalls and the need for more robust bank supervision, highlighting past regulatory rollbacks that contributed to the crisis. As the markets reacted positively to the Fed's handling and a dip in inflation, a sense of cautious optimism returned, suggesting the banking sector's resilience and the effectiveness of swift federal action.

Best Performing Stocks

Economic Rewind 2023 - Best Performing Stocks
Image depicting rise of stocks in 2023

As investors consider strategies for the new year, the focus might shift from seeking value to leveraging 2023’s best-performing stocks, embracing the notion that large companies can continue to grow and momentum can persist. Adopting a 'go big or go home' approach, this analysis focuses on the S&P 500 Index, revealing that technology giants, both expected and surprising, have dominated the scene.

Notably, Nvidia, a leader in artificial intelligence technology, experienced a significant rally due to its AI processors' demand. Analysts remain optimistic about its future, echoing sentiments of continued growth in the AI sector. Meta Platforms, despite challenges in virtual reality, has thrived as a social media powerhouse with significant platforms and promising new ventures, marking a notable stock rise.

Palo Alto Networks emerged as a surprise contender, gaining traction with its robust cybersecurity solutions in an increasingly digital and threat-prone world. Analysts are bullish, reflecting its potential for continued upward momentum. Lastly, Advanced Micro Devices, a prominent player in the chipmaker market, is keen on maintaining its competitive edge, particularly against AI tech giants, indicating a possible continued ascent in its stock value.

These four companies, with their distinct paths and potential for continued success, highlight the strategy of banking on already successful stocks, suggesting a dynamic blend of established giants and emerging leaders for investors in 2024.

Worst Performing Stocks

Economic Rewind 2023 - Worst Performing Stocks
Stocks on a decline

As Wall Street wraps up a notable year, five stocks significantly lagged in market performance. FMC Corporation, a chemical manufacturer, experienced a 48.9% decline, attributed to supply chain issues and increased costs. Enphase Energy, a solar technology firm, experienced a 48.2% drop amid market demand challenges and sector competition. Dollar General, experiencing a 46% downturn due to consumer spending shifts and operational hurdles, saw a challenging year. Moderna, reliant on its Covid-19 vaccine, experienced a 45.8% decrease, driven by reduced demand and regulatory pressures. Pfizer, faced a 44.5% fall, grappling with patent expirations and sales declines.

Each company's struggles were distinct, yet all contributed to significant losses. Their recovery in 2024 depends on overcoming these specific challenges, ranging from improving supply chains and market positioning to diversifying product portfolios and adapting to regulatory environments. While the past year has been tough for these stocks, the potential for rebound exists if they can effectively address their respective obstacles.

Economic Rewind 2023: Top Investment Theme

A Landmark Year for Artificial Intelligence Investments

Economic Rewind 2023 - Investments in Artificial Intelligence
Artificial Intelligence investments skyrocketed this year

2023 marked a dramatic increase in artificial intelligence (AI) investments, indicating a pivotal shift in the adoption of technology. Over 25% of all investment dollars in American startups were channeled into AI-related companies, a significant leap from the previous 12% average. In particular, large language models (LLMs) and generative AI capabilities attracted substantial attention and funding. Goldman Sachs predicts global AI investment might reach $200 billion by 2025, potentially boosting global labor productivity and significantly contributing to GDP growth. 

Noteworthy developments include OpenAI's soaring valuation, with Microsoft committing $10 billion at a $29 billion valuation, and major tech players like Amazon, Nvidia, and Microsoft making considerable investments in the sector. The impact of AI spans various industries, from software development to art, highlighting its transition from theoretical to practical application. The year also saw a rise in investment for machine learning operations (MLOps) startups, focusing on automating and managing the ML lifecycle. Despite potential risks, the robust engagement from significant tech companies suggests a long-term, transformative investment trend in AI.

The Rise of Obesity Drug Investments

Economic Rewind 2023 - Investments in Weight loss drug
Weight loss drug invention saw heavy investments in 2023

Pharmaceutical investment has surged notably in the past year, with a significant focus on obesity drugs. Novo Nordisk and Eli Lilly, manufacturers of leading drugs such as Ozempic, Wegovy, Mounjaro, and Zepbound, have experienced substantial stock rallies, marking their most significant gains since 1997. Despite these advances, analysts warn of overvaluation concerns. 

The market for GLP-1 obesity treatments is projected to reach $71 billion by 2032, with broader market predictions suggesting it could reach up to $100 billion within a decade. A substantial portion of the obese and overweight American population is expected to adopt these treatments, with many favoring branded GLP-1 therapies from Novo and Lilly. Investors must carefully assess the market's potential against current valuations and competitive challenges.

Economic Outlook

Economic Rewind 2023 - Future Economic Outlook
2024 Economic Outlook

In 2023, significant changes in inflation and interest rates influenced the market. The Federal Reserve's aggressive rate hikes from March 2022 aimed to control surging inflation. These efforts appeared to yield positive outcomes, with the consumer price index (CPI) inflation peaking at 9% in June 2022 and falling to 3.1% by November 2023. Although inflation rates remained above the Fed's target, the slowing trend allowed for fewer and smaller rate increases. Looking ahead, the bond market anticipates a potential shift from rate hikes to cuts by May 2024. Economists note that despite high prices, strong job markets and income growth have helped sustain consumer spending, reflecting optimism for 2024. The stock market's performance in 2023 further indicates investor confidence in the Fed's ability to manage inflation, suggesting a lessening economic headwind and potential cessation of rate hikes.

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