The Pension Boards - PBUCC - Market Update from CIO Dave Klassen

Market Update from CIO Dave Klassen – December 2023

Global equity markets posted strong returns in December as the fed indicated that interest rates are likely at their peak and the markets started expecting rate cuts in 2024. The global equity index (MSCI ACWI IMI) increased by +4.80% in December and is up +22.20% in 2023. The S&P 500, which tracks large-cap U.S. stocks, increased by +4.54% in December and is up +26.29% in 2023. The Russell 2000 Index, which tracks domestic small cap stocks increased by +12.22% in December and is up +16.93% in 2023. The International developed equity index (MSCI EAFE) increased by +5.31% in December and is up +18.24% in 2023. The emerging markets index (MSCI EM) increased by +3.91% in December and is up +9.83% YTD.
In December, bond yields decreased across maturities while exhibiting intra-month volatility; the 30-year U.S. Treasury bond yield decreased by -51 bps to +4.03%, the 10-year yield decreased by -49 bps to +3.88%, and the 2-year yield decreased by -50 bps to +4.23%.
The Barclays U.S. Aggregate Index, which is a measure of U.S. Bond prices, increased by +3.83% in December and is up +5.53% in 2023.

U.S. gross domestic product (GDP) in the third quarter of 2023 increased by 4.9%, according to the “Third” estimate released by the Bureau of Economic Analysis. In the second quarter of 2023, GDP increased by 2.1%.
The December Services PMI (formerly Non-Manufacturing Purchasing Managers Index) decreased to 50.60% from 52.70% in November. This represents expansion and is lower than market expectations of 52.60%. The December Manufacturing PMI increased to 47.40% from November’s 46.70%. Per the Institute for Supply Management (ISM), a reading above 50 is considered economic expansion, and below 50 is considered economic contraction.
December non-farm employment increased by 216,000 jobs, and the unemployment rate remained unchanged at 3.7%, as reported by the Bureau of Labor Statistics on January 5th, 2023. In December employment increased in government, health care, social assistance, and construction. Average Hourly Earnings (wages) increased by 4.1% year-over-year in December.

The Equity Fund increased by +5.39% in December and is up +18.08% in 2023. The Bond Fund increased by +3.48% in December and is up +5.64% in 2023. The Stable Value Fund was up +0.12% for December and is up +2.16% in 2023. The Northern Trust Global Sustainability Index Fund (GSIF) increased by +4.60% in December and is up +23.94% in 2023.
The Balanced Fund increased by +4.57% in December and is up +12.23% in 2023. The Target Annuitization Date TAD 2025; TAD 2030; TAD 2035; TAD 2040 TAD 2045 and TAD 2050 returns were +2.29%, +4.03%, +4.47%, +4.84%, +5.09% and +5.12% respectively for December and up +7.45%, +11.06%, +12.61%, +13.98%, +14.64%, and +15.85% in 2023.