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Economic Update: Reviewing Q4 2023

Below is a sneak peek of insights from the YCharts Q4 2023 Economic Summary Deck. The deck, published quarterly, arms advisors and investors with key insights from the previous quarter to help you make smarter investment decisions going forward.

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Market and Asset Class Update

Investors went risk-on to close out the year as stocks rebounded from a drawdown in Q3. The NASDAQ led the way with a 13.6% gain in Q4. The Dow Jones was right behind, rising 12.5%, while the S&P 500 advanced 11.2%.

Chart showing major index performance for Q4 2023

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The Q4 rebound in the stock market resulted in all three major US indices producing positive double-digit returns in 2023. The NASDAQ surged 43.4%, the S&P tacked on 24.2%, and the Dow Jones increased by 13.7%.

As for total returns across asset classes, Real Estate was the leader in Q4 with an 18% gain. Right behind it were the sensitive asset classes of US Growth and US Small Caps. Commodities were the only asset class that failed to post a positive return in both Q4 and the full year.

Q4 2023 Asset Class Returns Matrix Quilt

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Manufacturing: Contraction, or Expansion?

The state of the US manufacturing sector is a complex picture right now. If using the ISM Manufacturing PMI, the sector is in contraction territory.

When the PMI is below 50, it signals a contraction in the sector. As shown in the chart below, the PMI has been under this threshold since November 2022.

Chart of ISM Manufacturing PMI as of December 2023

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The trajectories of US Manufacturing Construction Spending and US Manufacturing New Orders present a different picture entirely. Both have seen a notable acceleration over the same timeframe.

Chart of Manufacturing Spending and New Orders as of December 2023

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The divergence between the PMI and construction spending and orders may point to a sector that is preparing for a rebound despite current contractionary pressures. Could the sustained high volume of new orders be a signal that the sector may actually be on the verge of an expansion?

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