The economy is doing better than expected. Your 401(k) probably is, too.

Nearly everyone thought a recession was likely to hit last year. Instead, 2023 saw better-than-expected economic growth and falling inflation — cheering Wall Street and retirement savers alike.

Nearly everyone, from the Federal Reserve to big-bank chiefs, thought a recession was likely to hit last year. Instead, 2023 delivered better-than-expected economic growth and falling inflation — welcome news for Wall Street investors and 401(k) holders alike.

All three major stock indexes closed higher on Thursday after new federal data showed the United States’ economy grew by an estimated 2.5% over the course of 2023, defying widespread predictions that gross domestic product would rise by a languid 0.7%.

While economic output has slowed in recent months, investors’ growing optimism that the Fed will cut interest rates this year has helped power the stock market to record highs. The S&P 500 is up more than 2% at the start of this year, after jumping 26% last year. Now, many Americans whose only toehold in markets are their retirement accounts are getting in on the good times, too.

The San Francisco skyline rises behind a bank of cranes and shipping containers at the Port of Oakland.Justin Sullivan / Getty Images fileThe average 401(k) balance rose to $107,700 by the third quarter of 2023, up 11% from the year before, according to the latest update from Fidelity Investments, one of the largest retirement plan providers in the nation. That growth appears to have encouraged many savers last year to sit back and relax as markets rose, rather than tinker with their allocations.

Human resources provider Alight found that net trading activity in 401(k) plans has quieted down, falling to a rate of 0.82% last year from 1.27% in 2022 — and down substantially from 3.51% in 2020, the year the pandemic slammed into markets.

https://www.nbcnews.com/business/economy/economy-better-expected-401k-probably-rcna135302

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