The last two years in the stock and government bond markets have been interesting.

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The S&P 500 is still down from two years ago, the Nasdaq is back in August 2021, small caps are back three years, but the Mag7 has exploded.

Written by Wolf Richter of Wolf Street.

After a terrible year for stocks, 2023 turned out to be a big year for stocks. A small number of giant stocks demonstrated extraordinary power to push up stock indexes in 2023. And in the last two months of this year, there was a lot of enthusiasm for the Fed to cut billions in interest rates in 2024, which not only gave more fuel to stocks, but also caused the market to fall, but at the same time The U.S. bond market also improved, causing the 10-year Treasury yield to jump off a mountain it took eight months to climb in two months.

These big moves in the stock market erased much of the damage caused in 2022, but not all, and the damage was spread unevenly.

Indices dominated by the largest stocks reached new highs, including the Magnificent 7 (Nasdaq 100 and Dow).

Despite this big year for stocks, the Russell 2000, which tracks 2,000 small-cap stocks, closed three years ago in early January 2021. The S&P 500 index ended below his two-year-old level, and the Nasdaq ended at his August 2021 level.

S&P 500 index It rose 24% in 2023, reversing a 19.4% decline in 2022, ending the year at 4,770. Few cigars, but none. At the time of the closing price, it was 0.5% below the all-time closing price of 4,796, set two years ago on January 3, 2022. Well, maybe next year or whenever.

2022 and 2023 have been quite eventful, with a number of big ups and downs, before ultimately settling into roughly the same position as where it started two years ago (all historical stock data via YCharts).

Nasdaq Composite It surged 43% in 2023, a huge rally, reversing almost all of the 33% plunge in 2022 and closing at 15,011. However, it was still down 7% from its all-time high in November 2021.

The index first reached this level in August 2021. So after 27 months of intense volatility, they finally leveled out.

Let’s break this down a bit.

Nasdaq 100 [NDX], The stock, which tracks the 100 biggest stocks on the Nasdaq, soared 54% in 2023, slightly offsetting a 33% decline in 2022, and began hitting new all-time highs in December. It closed at 16,825, up 2.4% from its all-time high in November 2021.

This 54% increase was the best year since the dot-com boom of 1999, and then… oops.

A small number of giant stocks with huge gains pushed these indexes higher. These mega-cap stocks have become more heavily weighted in the Nasdaq 100 Index, accelerating its rise.

Dow Jones Industrial Average, The 30 stocks that track the largest stocks in each industry rose 13.7% in 2023, started hitting new all-time highs in December, and ended the year at 37,690, more than erasing the 8.8% decline in 2022. It has become a thing. It is currently rising. He’s up 2% from its all-time high on January 3, 2022 (the Dow is constructed as an average of the prices of his 30 stocks, so it has some quirks).

In contrast, the Russell 2000 index The study, which tracks 2,000 small-cap stocks, ended the year below levels from three years ago. The 13.7% rise in 2023 was not enough to offset the 21.6% plunge in 2022. The index value of 2,027 has returned to the level of early January 2021, three years ago.

And it is down 17% from its all-time high in November 2021. In other words, the last three years have been like weathering rough waters.

Mag 7 after November 16, 2021.

The NASDAQ peaked in mid-November 2021, but remains below that level. Therefore, we will use November 16th as a starting point.

Since November 16th, the stock prices of these seven giant stocks have moved in different directions, with Nvidia at the top (+64%) and Tesla at the bottom (-29%). Amazon and Alphabet have also remained down since mid-November 2021.

It wasn’t all smooth sailing to get there. By November 2022, the Mag 7s have all been in the red since mid-November, with Meta at the bottom down 73%, while at the top Apple is down just 3%.

Mag 7 since November 16, 2022.

The prices of these seven stocks rose explosively. On the high end, Nvidia is up 252%, Meta is up 207%, and Tesla is up 120% over the past 13 months. At the bottom, Microsoft, with a market capitalization of about $3 trillion, rose 60%. And Apple, the world’s largest company with a market capitalization of about $3 trillion, had a 53% share. Together, these two companies gained a market cap of $3 trillion in 13 months.

These are stocks with huge market capitalizations. The combined market capitalization of these seven stocks is $12 trillion. And they’re big movers in the overall index, and over the past 13 months, their massive surge has driven the rise in the overall index they control.

Now, what about the 10-year government bond yield?..That was also interesting. 2023 ended at 3.88%, rising to the basis point at the end of 2022 (3.88%), so we didn’t make any progress at all in the last 12 months, but we shed a lot of blood for 10 months and climbed a big mountain. It certainly climbed (failed banks), but then it plummeted in two months amid sweat, tears, and a frenzy about the Fed’s multibillion rate cuts in 2024.

In this cycle, the 10-year Treasury yield reached 3.88% for the first time on its way up in September 2022.

Although it’s barely visible on this chart, the 10-year Treasury yield has risen a total of 9 basis points over the past two days as mania over the Fed’s multibillion rate cuts begins to fade.