The stock market ended 2023 with a flourish as inflation declined, interest rates stabilized and fears of a much-anticipated recession eased. The rally swept up most larger Arizona stocks, too, with local technology and homebuilder companies leading the charge.
But it took most of the year for all of that to become apparent, and it remains to be seen if the momentum will spill over into 2024.
For the majority of 2023, the mood was somber as consumers grappled with high living costs, businesses faced an early-year earnings downturn, interest rates shot up, political rancor remained nasty and geopolitical worries raged, from Ukraine to China to Gaza.
“There has been a ton of negativity lately,” said Thorne Perkin, president of investment firm Papamarkou Wellner Perkin, who during a recent interview called this the “most-hated bull market in history.”
But sentiment has improved, especially after the Federal Reserve signaled in mid-December that its two-year push to hike interest rates might be over.
Investors responded by piling into stocks again, especially in the weeks after Halloween. The broad market, as represented by the Standard & Poor’s 500, finished 2023 with a surge of 24% for the year, rebounding from the 18% shellacking it suffered in 2022.
Both the S&P 500 and better-known Dow Jones Industrial Average, up 14% for the year, flirted with all-time highs during the closing days of 2023.
Most larger Arizona stocks on a roll
The rally has been broad. Of the 34 Arizona-based corporations with a stock market value of at least $1 billion, 27 of those finished 2023 in the plus column. Overall, these larger Arizona stocks logged a median, or midpoint, return of 28% in 2023.
Technology stocks bounced back strongly from a dismal 2022, propelled by artificial intelligence, federal funding from the CHIPS and Science Act and other catalysts.
Two of Arizona’s largest semiconductor manufacturers, Microchip Technology of Chandler and Scottsdale-based On Semiconductor, logged solid gains of 29% and 36%, respectively, for 2023. (Individual stock returns in this article, provided by Morningstar, are for the year through Dec. 28.)
The Phoenix area has emerged as a leading hub for this industry, headlined by the new Taiwan Semiconductor Manufacturing Co. complex arising in north Phoenix and Intel’s expansion in Chandler, with a multitude of suppliers moving in to serve them. But the home-based companies also have been faring well, along with other Arizona-based technology corporations.
Among them: Insight Enterprises, which during the year showed off its new headquarters in Chandler, enjoyed a 77% stock market surge in 2023, and shares of Amkor Technology shot up 41%. The Chandler company in late November announced a $2 billion semiconductor testing plant in Peoria that could result in 2,000 jobs.
The state’s weakest stock in 2023 was Nikola Corp., the maker of emissions-free heavy trucks. The company’s shares lost 59% for the year. Nikola’s founder, Trevor Milton, was sentenced to prison in December for misleading statements he had made to investors, though he is no longer affiliated with the company.
Better prospects for some companies
Another strong theme for a few Arizona-based stocks was residential real estate, with Scottsdale-based homebuilder Taylor Morrison Home Corp. advancing 78% and Meritage vaulting 90%. These and other homebuilders have reported profit weakness of late, but investors believe the worst is over, at least in terms of the interest rate trend and homeowner affordability.
Perkin said he expects interest rates to keep falling, with 30-year mortgage rates possibly dipping to 5%, if not slightly lower — a scenario that would shore up consumer finances and bolster homebuilding companies.
Phoenix-based Cavco Industries, a maker of manufactured homes, also wrapped up a strong year on Wall Street with a 56% jump in 2023, though its profits also have been pressured by high-interest rates that have crimped affordability for prospective homeowners.
Overall, the two biggest gainers in 2023 among Arizona stocks were online auto retailer Carvana and Opendoor Technologies, which provides an online service for buying and selling homes. The two Tempe-based companies scored returns of 1,058% and 303%, respectively, in 2023. However, both stocks remain well below their all-time peaks hit in 2021.
Other Arizona companies also attracted favorable attention during the year, including U-Haul International. The Phoenix truck rental company was cited by Barron’s as one of the publication’s 10 favorite picks for 2024.
Also, researcher Morningstar Inc. in a recent article identified what it called 10 highly rated stocks that are commonly held by clean-energy and climate-focused funds.
Of these, two are Arizona-based: ON Semiconductor and First Solar, a Tempe-based maker of solar panels. A third company on the list, Florida-based NextEra Energy, has more than two dozen solar or wind projects operating, under development or planned for Arizona, including those supplying power to Salt River Project.
Will the rally keep going?
The stock market ended 2023 with strong upside momentum. But the persistence of the rally is an open question, especially since the rally has made stocks more expensive.
However, the bull market is young, profits are likely to start rising again and other factors could support further gains, according to a year-end analysis by LPL Financial.
Plus, many investors still haven’t bought into this rally.
“There is still a mountain of cash on the sideline, and we think that allocation will seek a new home in equities as Treasury yields drop,” Perkin said.
Also on the positive side, stocks tend to rally during the fourth year of presidential terms, and 2024 will be one of those years.
LPL Financial contends the stock bull market began about a year ago and now is entering year two. Of the 12 prior bull markets since 1950, the S&P 500 has gained an average of 12.6% during the second years, with a positive result each time, the company said.
What about bonds?
Stocks weren’t the only investment category to recover in 2023 from a sharp downdraft in 2022. Bond prices, which move inversely to interest rates, also have stabilized of late and will push higher if rates drop further.
Regardless, elevated interest rates aren’t entirely bad, as they provide better yields for people who hold a mix of stocks and bonds in their portfolios, said Joe Davis, global chief economist at the Vanguard Group, in a recent investment outlook.
Also, higher interest rates force more prudence in borrowing decisions and encourage saving, though they also could further pressure governments that run deficits, he said.
In its latest outlook, Vanguard doesn’t expect U.S. stocks will perform especially well over the decade ahead, with an expected annual return, including dividends, in the range of 4.2% to 6.2% a year over that period — not much different from Vanguard’s forecast for U.S. bonds to return 4.8% to 5.8% annually including interest. The fund giant also doesn’t see the U.S. avoiding a recession for long.
But higher interest rates should be viewed as a positive in many ways, the company contends. “This rise in interest rates is the single best economic and financial development in 20 years for long-term investors” who hold balanced portfolios, Davis said.
Arizona leaders and laggards
The following were among the best- and worst-performing Arizona stocks for 2023, with results for the year through Dec. 28, provided by Morningstar Inc. The lists were restricted to Arizona companies with a stock market value of at least roughly $1 billion.
Leaders:
- Carvana Co.: +1,058%
- Opendoor Technologies: +303%
- Meritage Homes: +90%
- Taylor Morrison Home: +78%
- Insight Enterprises: +77%
- Verra Mobility: +67%
- LifeStance Health: +60%
- Axon Enterprise: +56%
- Cavco Industries: +56%
- Sprouts Farmers Market: +48%
Laggards
- Nikola Corp.: -59%
- Leslie’s Inc.: -42%
- Cable One: -21%
- Mister Car Wash: -7%
- Pinnacle West Capital: -6%
- Vodavi Solutions: -4%
- WillScot Mobil Mini: -1%
- Benchmark Electronics: +5%
- Knight-Swift Transportation: +11%
- Rogers Corp.: +12%
Reach the writer at russ.wiles@arizonarepublic.com.
