Market Opinion - December 2023

Market Opinion - December 2023

December saw strong global stock and bond markets, influenced by the US Federal Reserve's hints of possible interest rate cuts in 2024. Developed markets surpassed emerging ones, with China's real estate concerns and a decline in crude oil prices despite production cuts.

In the US, the stock market, including the S&P 500, saw significant gains. The country's annual inflation rate decreased progressively from September to November, and economic growth for Q3 was adjusted down. This supported expectations of the Fed ending its rate hiking cycle, with potential cuts in 2024. Information technology, real estate, and consumer discretionary sectors thrived, while the energy sector saw declines.

Eurozone shares also performed well, aided by softened inflation data and no anticipated rate rises, leading to a 7.8% increase in the MSCI EMU index. Real estate and IT sectors led the gains, while healthcare and energy lagged.

UK equities improved, with smaller, domestically focused companies outperforming larger ones. UK inflation rates dropped, and GDP fell in Q3. Chancellor Jeremy Hunt's Autumn Statement introduced significant policy measures, including extended capital expenditure allowances.

Japanese markets saw a 2.0% increase in the TOPIX Total Return index, despite initial worries over US interest rates and geopolitical risks. Corporate earnings remained strong, and the Bank of Japan showed signs of policy normalization.

Asian equities rose, driven by reduced concerns over US interest rates. Markets ended positively except for China, with Taiwan, South Korea, and India showing strong growth, especially in technology sectors.

Emerging markets experienced overall strength, with Poland, Peru, Egypt, and Mexico showing significant gains. Brazil and Taiwan benefited from economic shifts, while China's struggles and Turkey's high inflation impacted their markets negatively.

Fixed income markets had their best quarter in two decades, with government bond yields dropping and corporate bonds rallying. The US Fed maintained rates, and other central banks remained cautious. The Swedish krona led in the FX market, while convertible bonds also gained, driven by equity market performance.

The S&P GSCI Index fell, with declines in energy and agriculture sectors despite gains in precious and industrial metals. Digital assets had a strong quarter, with significant growth in Bitcoin, Ethereum, and altcoins like Solana and Avalanche.