Firstly, we would like to start by wishing you all a Happy New Year and a prosperous 2024. In addition to your roast potatoes and presents last month, Santa also sprinkled his Christmas joy onto stock markets in December. With the exception of Japan, which was only marginally down (0.1%) and the Shanghai Composite, all major stock markets reported healthy growth.

2023 was an incredibly frustrating year which felt like ‘two steps forward, two steps back’ for investors. Inflation continued to rise, as did interest rates, and the ‘higher for longer’ message conveyed by central banks worried markets regarding how businesses and consumers would cope with the soaring cost of borrowing. The US recorded lower inflation than anticipated in November, with price rises cooling at a faster rate than expected, sparking a fantastic end-of-year rally.

US inflation actually fell slightly from 3.2% to 3.1% with Federal Reserve chair, Jay Powell, announcing new forecasts pointing to 75 basis points worth of cuts in 2024. In the UK, the Bank of England held interest rates at 5.25% following a sharp fall in inflation from 4.6% to 3.9% in November. In the Eurozone, inflation in November came in at 2.4%, close to the ECB’s 2.0% target.

Casting our minds back to the start of 2023, most economists estimated a 50/50 chance of Western economies falling into recession, and that China would provide the majority of global growth. In actual fact, we have witnessed the opposite. The US economy proved incredibly resilient, with consumer spending undeterred despite inflationary pressures and rising interest rates. Corporate Earnings also remained strong and employment figures robust.  We witnessed a slight wobble in March with the Silicon Valley Bank running into financial difficulty, which resulted in a classic ‘run on the bank’. Fortunately, the lessons learned from the Lehman Brothers episode as well as the reactions from the US central bank and other regulatory bodies led to a major banking crisis being avoided.

A special mention needs to be made to the Magnificent 7 (Apple, Alphabet, Microsoft, Amazon, Meta, Telsa and Nvidia) which delivered a return of 71% compared to a 6% return from the remaining 493 companies within the S&P 500 index (source: Goldman Sachs Global Investment Research) in 2023. These stocks now make up 29% of the S&P 500 market cap.

It was anticipated that the reopening of China’s economy from Covid restrictions would hail heightened levels of consumer demand and economic activity in 2023, but this did not come to fruition. The economy remained sluggish, and still does, as a clear bubble within their domestic real estate sector developed, which now casts serious concerns over the level of debt in both the corporate banking and shadow banking sectors. Last month, Moody’s cut China’s credit outlook, following reports that Chinese borrowers were defaulting on loans in record numbers.

In the UK, our economy remains on the edge of dipping into recession. The economy modestly contracted in the third quarter, by 0.1%, indicating we are more than likely experiencing the ‘soft landing’ scenario prediction, rather than the ‘hard landing’ whereby the recession would be very long, deep and harsh.

Overall, December (coupled with November) delivered the investment growth we have longed for all year in 2023, and is hopefully an indication for a positive 2024. We remain vigilant of the potential geopolitical risks and the numerous elections in the year ahead but look forward to working with you to deliver your financial goals.

If you would like to discuss your investment opportunities with one of our Independent Financial Advisers, please do not hesitate to get in touch on 01463 242242.

Author: Douglas Sims, Independent Financial Adviser, Integrity365

Published: 18th Jan 2024