In a year full of big numbers, with strong gains for stocks and even more fantastic flights for crypto, it was one shrinking number that superseded all.

Inflation, the scourge of the global economy, moderated this year.

It’s still relatively high, particularly after the many years of low inflation that everyone enjoyed before U.S. inflation topped 9% two summers ago. But it’s cooled enough to get investors looking ahead to 2024 where interest rates may be on the way down instead of up.

Globally, inflation is estimated to have come down to 6.9% from 8.7% last year.

Surprisingly, the U.S. economy also held up through the year despite worries at the start of it that a recession may be inevitable. For a while, the worry was even that the economy may be too strong, which could have fed into upward pressure on inflation and forced the Federal Reserve (Fed) to keep interest rates higher for longer.

That led to counterintuitive moments where Wall Street actually cheered weaker reports on the economy, as long as they weren’t too weak, because they kept alive the possibility of a perfect landing for the economy engineered by the Fed. The goal was for the economy to slow just enough to snuff out high inflation, but not so much that it falls into a recession.

Interest rates were a major factor driving the stock market in 2023. The Fed aggressively raised short-term rates in an effort to fight inflation by cooling off the economy. In the bond market, long-term Treasury yields rose sharply over the summer, diminishing the appeal of stocks and also acting as a brake on the economy. Treasury yields began to pull back after Halloween.

Now, with the economy still growing and expectations rising for cuts to rates coming in 2024, investors have rushed to get ahead of the moves, which can act like steroids for all kinds of markets. U.S. stocks bounced back from their dismal 2022, which was Wall Street’s worst year since the dot-com bubble was deflating two decades earlier.

Much of Wall Street’s run was due to just a small group of stocks, but breadth was better around the world. Stock markets across the Americas, Europe and Asia all rose.

Higher interest rates left their mark, however, notably in the U.S. housing market. Sales of previously occupied U.S. homes slumped in October to their slowest pace in more than 13 years.

Inflation and global economy

Here's a look at some of the striking numbers that shaped global financial markets in 2023.

Held down by sinking gas prices, U.S. inflation was mostly unchanged in November and came in at 3.1%. But underlying price pressures – from apartment rents, restaurant meals, auto insurance and many other services – remained stubbornly high.

Inflation peaked at 9.1% in June 2022. The Federal Reserve’s target level is 2%.

Overall inflation in the European Union came in at 2.4% in November, a far cry from a peak of 10.6% in October 2022. Energy prices plunged 11.5% from the same month a year earlier. But food inflation remains stubbornly high at 6.9%.

The rate of inflation in Argentina stands at a staggering 161%. The government has responded by slashing the country's currency value in half, suspending public works and cutting subsidies for gas and electricity among a number of drastic measures.

Twenty-two consecutive months have seen the U.S. unemployment rate come in below 4%, the longest streak since a 27-month run from November 1967 through January 1970. The job market held up even as the Federal Reserve tried to slow the economy to fight inflation.

Some 67% of Americans disapproved of President Joe Biden’s handling of the economy in an October poll from The Associated Press-NORC Center for Public Affairs Research. That sentiment, if it persists, could hamper Biden in his expected election rematch with former President Donald Trump.

Investment in China's property sector is estimated to have declined 9.4% from January through October, according to the World Bank. Weakness in the property sector and global demand for China’s exports, as well as high debt levels and wavering consumer confidence, have weighed on the country's economy.

Germany’s economy contracted by 0.1% in the third quarter. Europe’s biggest economy should shrink again slightly in the last quarter, the Bundesbank estimates.

World trade is expected to have grown by 1.1% in 2023, down from 5.2% in 2022 and sixth weakest in Organization for Economic Co-operation and Development (OECD) records going back to 1980.

The slump reflects a slowing global economy, growing protectionism and geopolitical tensions between the U.S. and China.

Late-year stock market rally

The S&P 500 closed out 2023 with a gain of more than 24% and the Dow finished near a record high, as easing inflation, a resilient economy and the prospect of lower interest rates buoyed investors, particularly in the last two months of the year.

The Nasdaq gained more than 43%, its best performance since 2020.

For most of the year, gains in the broader market were driven largely by seven stocks – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla.

Dubbed the Magnificent 7, they accounted for about two-thirds of the gains in the S&P 500 in 2023, according to S&P Dow Jones Indices. Nvidia lead the group with a gain of about 239%, driven by the mania surrounding artificial intelligence.

Market strategists who track historical trends say that such a strong annual performance for stocks has often carried over into the following year, a phenomenon they attribute to factors including momentum and solid fundamentals.

Investors in the U.S. came into 2023 bearing the bruises of sharp losses for both stocks and bonds in 2022. They expected inflation to ease further as the Fed pushed interest rates higher. The trade-off would be a weaker economy and possibly a recession. But while inflation has come down to around 3%, the economy has chugged along thanks to solid consumer spending and a healthy job market.

The stock market is now betting the Fed can achieve a "soft landing," where the economy slows just enough to snuff out high inflation, but not so much that it falls into a recession. As a result, investors now expect the Fed to begin cutting rates as early as March.

The Fed has signaled three quarter-point cuts to its benchmark interest rate in 2024. That rate is currently sitting between 5.25% and 5.50%, its highest level in two decades. The Fed raised rates 11 times between March 2022 and July of this year before pausing.

The European Central Bank's (ECB) benchmark interest rate is at 4%. Like the Fed, the ECB kept rates steady at its latest meeting. Unlike the Fed, the ECB did not signal the possibility of rate cuts next year.

But while the Fed is expected to cut its key rate to around 3.75% by the end of 2024, it will only fall to around 3% by the end of 2026, then rise back to around 3.5% thereafter, money market pricing suggests.

That is in stark contrast to rates staying near zero for most of the decade following the global financial crisis, only gradually rising to 2.25%-2.50% in 2018.

ECB rates are seen at roughly 2% by end-2026, a reduction but hardly a sign of any return to the unorthodox experiment with negative rates seen from 2014 to 2022.

Lower rates could add more fuel to the broader market’s momentum in 2024. Wall Street is forecasting stronger earnings growth for companies next year after a largely lackluster 2023 when companies wrestled with higher input and labor costs and a shift in consumer spending.

Bond market investors appeared headed for a third losing year in a row until things turned around starting in late October. Excitement about potential cuts to interest rates sent bond prices soaring and yields dropping. The yield on the 10-year Treasury, which hit 5% in October, stood at 3.88% last Friday, up from 3.85% on Thursday.

The yield on the two-year Treasury, which more closely tracks expectations for the Fed, fell to 4.25% from 4.28% from late Thursday. It also surpassed 5% in October.

Many global markets also saw solid gains in 2023. Indexes in France and Germany made double-digit advances, while Britain’s has climbed just under 4%.

Tokyo’s Nikkei 225 gained 27%, its best year in a decade as the Japanese central bank inched toward ending its longstanding ultra-lax monetary policy after inflation finally exceeded its target of about 2%. In July, the index rose to 33,753.33, its highest level since 1990.

The Shanghai Composite index lost about 3% and the Hang Seng index in Hong Kong fell nearly 14%.

Bitcoin surged past $43,000 in December after starting the year below $16,300. It and other cryptocurrencies tumbled in 2022 as rising rates hit investments seen as particularly risky.

Oil tumbles, gold peaks

The price of crude oil tumbled by more than 10% in 2023, defying predictions from some experts that it could cross $100 per barrel.

Despite production cuts from OPEC, a war involving energy exporter Russia and another in the Middle East, U.S. benchmark crude dropped nearly 11% in 2023, and a whopping 21% in the final three months of the year.

Increased production in the U.S., now the top oil producer in the world, as well as Canada, Brazil and Guyana offset the reduced output from OPEC. Not all OPEC members participated in the cuts and some countries like Iran and Venezuela are pumping more oil, energy analysts say.

Gold investors anticipate record-high prices in 2024, when the fundamentals of a dovish pivot in U.S. interest rates, continued geopolitical risk and central bank buying are expected to support the market.

Spot gold posted a 13% annual rise in 2023, its best year since 2020, trading comfortably above $2,000 per ounce.

On Dec. 4, gold hit a record high of $2,135.40 on bets of U.S. monetary policy easing in early 2024 after a perceived dovish tilt from Fed Chair Jerome Powell, surpassing the previous record scaled in 2020.

The precious metal almost made uncharted territory in May this year as a U.S. regional banking crisis took hold. By October, it had retreated close to $1,800 an ounce until safe-haven demand triggered by the Israel-Palestine conflict spurred another rally.

JPMorgan sees "a breakout rally" for gold in mid-2024, with a targeted peak of $2,300 on expected rate cuts. UBS forecasts a record of $2,150 by the end of 2024 if cuts materialize.

The World Gold Council, in its 2024 outlook, projected that a drop of about 40 to 50 basis points in longer maturity yields, following 75-100 points of rate cuts, could translate into a 4% gain for gold.

Optimism about IPOs

The signs of life shown by the IPO market, especially in the second half of 2023, are giving analysts hope that more companies will be enticed to go public in 2024.

Overall, 108 initial public offerings raised proceeds of about $19.4 billion in 2023, according to Renaissance Capital. That's up from a dismal 71 IPOs for proceeds of $7.7 billion in 2022 when high inflation and rising interest rates discouraged companies from hitting the market.

This year's big IPOs included health care products company Kenvue in May, U.K. chip designer Arm Holdings in September and footwear company Birkenstock in October. They accounted for over half of the total IPO proceeds, according to Renaissance Capital. Instacart also had a splashy IPO in late summer.

A post-pandemic surge for IPOs was stifled by the highest inflation in four decades in 2022, raising concerns about the economy buckling under the pressure. The Fed’s rate hikes to tame inflation made borrowing more expensive and increased caution in the IPO market.

The Fed's preferred measure of inflation, the monthly personal consumption and expenditures report, has cooled to a pace of 2.6% from a high of 7.1% in the middle of 2022.

Cooling inflation and falling interest rates could push the IPO market back toward a more normal level of activity, which averaged about 170 IPOs with average proceeds of about $43 billion from 2017 to 2019.

"While the IPO market's recovery is still somewhat tenuous, all signs point to a solid pickup in 2024," said Renaissance Capital in its recent IPO review for 2023.

The IPO market is expected to grow along with the economy. Corporate profits are expected to rise after shaking off an earnings recession. Earnings gains of just under 2% during the fourth quarter of 2023 could be followed by a gain of more than 8% in the first quarter of 2024 and 10% during the second quarter of 2024 for companies in the S&P 500, analysts forecast.

IPO activity could speed up as CEOs gain more confidence that the "soft landing" will happen, according to a Goldman Sachs analysis.