S&P 500 index is up 24 percent in 2023 as markets close for final time this year – in major boost for 401(K) savers

The S&P 500 index of America's largest companies is up 24.2 percent for the year, a big boost for many 401(K) savers.

While stocks fell slightly on the last trading day of 2023, it was a surprisingly strong year of gains on Wall Street.

The so-called Magnificent 7 companies — Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla — accounted for about two-thirds of the S&P 500's gains this year, according to S&P Dow Jones Indices. Nvidia leads the group with a gain of about 240 percent.

Over the year, the Dow Jones Industrial Average also rose more than 13 percent, while the Nasdaq rose 43 percent.

Most 401(K) accounts have their money invested in whole or in part in the major benchmark indices, meaning that when they rise, Americans' retirement savings get a boost.

This means that someone with an average of $140,000 in 401(K) savings could have seen their pot increase by almost $35,000 over the year if it were in the S&P.

This year's rally is welcome news for investors and pension savers alike, after the major averages suffered in 2022.

The S&P 500 lost 19 percent last year and the Dow Jones Industrial Average lost 8.8 percent.

The S&P 500 index fell 0.3 percent on Friday and is just below the all-time high set in January 2022.

“Momentum remains favorable heading into the end of the year,” said Mona Mahajan, senior investment strategist at Edward Jones. CNBC.

“It's been a pretty phenomenal run for the S&P 500 over the last eight weeks, so I'm not surprised to see some moderation in the pace over the last few days.”

All major indexes are on track to post their ninth consecutive winning week, with the S&P 500 up 0.4 percent.

US investors entered the year expecting inflation to fall further as the Federal Reserve pushed interest rates higher – the trade-off being a weaker economy and a potential recession.

While shares fell slightly on the last trading day of 2023, it was a surprisingly strong year with gains on Wall Street

But while inflation fell to an annual rate of 3.1 percent in November, the economy has developed well thanks to solid consumer spending and a healthy labor market.

The stock market is now betting that the Fed can pull off a “soft landing,” where the economy slows just enough to extinguish high inflation, but not so much that it falls into a recession.

As a result, investors now expect the Fed to start cutting rates as early as March.

The Fed has announced that interest rates will be cut by three quarter points next year. That rate is currently at the highest level in 22 years: between 5.25 percent and 5.5 percent.

That could add more fuel to the broader market's momentum into 2024.

High interest rates and government bond yields negatively impact investment prices, so a sustained reversal means more relief from those pressures.

Wall Street predicts stronger earnings growth for companies next year, after a largely lackluster 2023 as companies grapple with higher input and labor costs and a shift in consumer spending.

The yield on 10-year government bonds was 3.88 percent on Friday, compared to 3.85 percent at the end of Thursday.

It surpassed 5 percent in October, but has generally fallen since then, easing pressure on stocks.