Quarterly Market Updates - Dec 2023
Dr. Steve Garth and Kim Hope from our Investment Committee summarise the highlights from the last quarter of 2023
- Global shares and bonds enjoyed a strong rally in the past two months of 2023 astraders priced in the expectation of interest rate reductions from central banks globally as inflation continues to slide.
- The US 10-year Treasury yield fell by more than 1% in the last quarter of 2023,resulting in the global bond index returning 5.4% for the quarter, and 5.3% for 2023.
- The Australian share market is up 12.4% in 2023. Most of that performance came from the last quarter, which returned 8.4%.
- The MSCI’s World index, the broad gauge of global share markets, posted a 23.2%gain in 2023
Pivot Party
At the start 2023 every market commentator and analyst seemed to be planning for the but something else was going on. Artificial-intelligence shares were red hot and were taking the chip makers with them - the “Magnificent 7” large tech stocks dominated USequity gains. By the end of September world equity markets were up 17% (in AUD) but the global bond market looked like producing its third negative year in a row - the exact opposite of earlier predictions.
But then the last two months of 2023 saw a remarkable shift in sentiment. In October boththe RBA and the Federal Reserve kept up the mantra that interest rates would stay “higherfor longer”, but in November data showed U.S. and European inflation falling much fasterthan expected. Suddenly everything, everywhere, all at once changed. Bond yields startedplummeting (meaning prices shot up) – but not because of recession. The market nowexpected that the “terminal rate” for interest rates had been reached, and that the economywould glide into a “soft landing”. Global stocks, listed real estate and corporate bonds allsurged higher.
The Fed then triggered fresh market excitement when it used its December meeting to state unequivocally that rate hikes were over. More telling though was the Fed's "dot plot" which envisaged three 25 bp cuts in 2024. The pivot party kicked into euphoric mode and2023 ended with strong market conditions across most asset classes, ensuring a strong return for investors for the year