For reasons mostly related to the relentless negativity of partisan TV news, most Americans believe that 2023 was a very bad year for the financial markets and economy.

However, the fact is [cue Mister Frank Sinatra]: It was a very good year.

It’s easy to forget that when 2023 began, most pundits seemed certain a recession was coming. The recession never materialized. The pessimists also warned that it would take years of high unemployment to curb inflation; this fear never came true, either.

Americans are telling pollsters that the economy is a shambles, although statistics prove otherwise. Thankfully, despite what they say about the economy, consumers continue to spend. This past holiday season, retail sales were strong.

Now that 2023 is in the books and the new year is officially underway, let’s take a look at the robust performances racked up by the economy and markets in 2023. I’ll also explain why solid gains are likely in store for 2024 and how to position your portfolio now.

Exceeding Expectations

The year 2023 began with low investor expectations but ended with a sustained rally. To be sure, there were plenty of reasons for worry along the way, including the Russia-Ukraine and Israel-Hamas wars, a regional banking crisis, and an elevated 10-year U.S. Treasury yield (TNX) that flirted with the dangerous threshold of 5%.

However, bearish sentiment dissipated amid several positive trends. The economy and consumer spending have shown surprising growth. Inflation has rapidly cooled, with the consumer price index falling in November to an annualized rate of 3.1%.

The TNX has fallen to about 3.8% and the CBOE Volatility Index (VIX) hovers at about 13; both of these technical signs are bullish. The Federal Reserve paused its tightening cycle and Fed officials have suggested that rate cuts are on the way in 2024. The technology sector has surged due to enthusiasm for artificial intelligence (AI).

Tinsel on the tree was a powerful “Santa Claus rally” from Thanksgiving through Christmas. It’s all a reminder that investors should stay diversified and disciplined, even when the news headlines seem grim.

Economic growth in 2023 was driven by strong spending on services, with the resilience of the consumer buttressed by excess savings and a tight labor market. Adjusted for inflation, most workers’ wages have risen. The unemployment rate has fallen to a half-century low of 3.7%, and job openings, while on a mild downward slope, continue to surpass the number of unemployed.

The public mood is sour over the economy, but this chart depicts a different story in the real world, with growth estimated to continue in the coming months:

Accordingly, stock investors reaped strong gains in 2023. Accounting for 90% of the S&P 500’s gains in the first half of 2023 were the “Magnificent Seven” mega-cap tech stocks: Amazon (NSDQ: AMZN); Alphabet (NSDQ: GOOGL); Apple (NSDQ: AAPL); Meta Platforms (NSDQ: META); Microsoft (NSDQ: MSFT); Nvidia (NSDQ: NVDA); and Tesla (NSDQ: TSLA).

The main catalyst for big tech’s bounce was enthusiasm over AI, with falling bond yields shoring up the rise.

However, starting in late October, the market started to show greater breadth, with the New York Stock Exchange Advance/Decline line (NYAD) currently hovering above its 50- and 200-day moving averages.

The NYAD shows how many stocks are advancing versus declining in any given period on the New York Stock Exchange. A climbing NYAD is bullish, because it denotes a more diversified participation in the equity market’s rise.

The following chart depicts the stellar gains we enjoyed in 2023:

The Fed has signaled three rate cuts in 2024; Wall Street is expecting as many as six. Although I think six cuts this year is excessively optimistic, the bottom line is that lower rates are on their way, which is generally beneficial for the stock market.

Segments of the equity market that lagged in 2023 included small-caps, bond-proxies such as high-quality dividend stocks, cyclical sectors, and value-style investments. The valuations of these assets now trade at attractive levels.

In the coming year, we should see Fed rate cuts, improving corporate earnings, accelerating economic growth, falling inflation, and retreating Treasury yields. All of these trends are tailwinds for stocks.

Ring-a-ding-ding

Ring out the old year, ring in the new. The laggards of 2023 are poised to become the leaders of 2024. Specifically, as you recalibrate your portfolio allocations for the new year, turn to utilities stocks.

The utilities sector got clobbered in 2023 by rising interest rates, but this year it’s poised to rebound as bond yields continue their descent. That means value plays are ready for the picking.

However, you need to pick the right ones. For our list of the highest-quality utilities stocks, click here now.

John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.