Market Opinion - November 2023

Market Opinion - November 2023

In November, both the stock and bond markets experienced growth, sparking speculation that interest rate hikes might be nearing their end. Growth-oriented stocks outperformed value-based ones, while commodity prices, particularly in the energy sector, saw a decline.

In the United States, equities saw significant growth, supported by October's inflation data which indicated a drop in the consumer price index to 3.2% year-on-year from September's 3.7%. This development fueled optimism that inflation might align with the Federal Reserve's 2% target, potentially negating the need for further rate increases. Despite this, the Federal Reserve expressed ongoing concerns about inflation levels. Economic indicators presented a mixed view of the U.S. economy, with GDP growth showing an uptick but manufacturing sector data indicating some contraction.

European shares also rose, driven by larger-than-expected drops in inflation, with the eurozone reporting a decrease to 2.4% in November. This led to expectations of a potential easing in price pressures and possible rate reductions. While markets reacted positively, European Central Bank President Christine Lagarde maintained a cautious stance. Other indicators suggested some economic weaknesses in the eurozone.

UK equities also improved, with smaller and mid-sized companies outperforming larger ones, as the British pound strengthened. Sectors sensitive to interest rate outlooks, like information technology and real estate, performed well, while energy and defensive sectors lagged. Inflation in the UK slowed significantly, adding to hopes that the Bank of England might halt further rate hikes. The Chancellor of the Exchequer introduced new fiscal measures, including a policy to encourage investment in machinery and plants.

Japanese equities rebounded, with large-cap growth stocks driving gains. However, domestic economic figures showed sluggish trends, and concerns about the government's popularity impacted the market. Corporate earnings strength and wage growth expectations offered some positive outlooks.

In Asia excluding Japan, equities saw robust gains, driven by optimism over the peaking of U.S. interest rates. Regional markets ended positively, with South Korea, Taiwan, and the Philippines leading. Chinese stocks, however, lagged due to concerns over economic growth and the real estate crisis.

Emerging markets also saw strong gains, slightly trailing developed markets. Egypt, Korea, Mexico, and Brazil were among the top performers, benefiting from various factors like tech rallies and policy rate cuts.

Global bond markets had a positive November, with government bonds and other fixed income assets rallying amid speculation of an end to rate hikes. The US Federal Reserve maintained rates, and economic data showed some softening. The Bank of England held its base rate steady, and European inflation fell more than expected, influencing bond markets.

Global credit markets also recorded positive returns, with US investment grade bonds leading. Convertible bonds gained from the equity market's performance, and the commodities market saw mixed results, with energy and livestock underperforming, while precious metals and agriculture saw modest gains.