Financial markets navigated a volatile macroeconomic environment in 2023 and delivered above-average gains across many asset classes. Long-term return potential has moderated as a result but remains much improved compared with two years ago.

Last year featured many concerns for investors. There was uncertainty about inflation, monetary policy, economic growth, consumer spending, energy, housing, politics and geopolitics. Many of these uncertainties inched in a positive direction as the year progressed. Steady progress was made in bringing down inflation as the U.S. Federal Reserve (Fed) hiked interest rates four more times to 5.5%. By year-end, economic growth surprised to the upside, consumers continued spending at a good clip, energy prices declined, housing stabilized, a U.S. debt-ceiling deal was struck, and the Israel-Hamas war had not expanded into the regional conflict feared by investors. In addition, a U.S. regional-bank crisis involving the March 2023 failures of Silicon Valley Bank and Signature Bank was largely resolved after the Fed intervened to shore up liquidity.

Rapid technological advancement of and excitement about artificial intelligence (AI) fueled the stock prices of many of the perceived AI winners, which were already some of the world’s largest companies. While the yield on the U.S. 10-year bond rose over 100 basis points to as high as 5.02% during the year and equity markets encountered frequent episodes of heightened volatility, most financial assets ended 2023 with decent gains. Only commodities suffered losses. We remain constructive on the outlook for investment returns across a broad range of asset classes over the next decade and beyond.