Many – but not all – leading equity markets ended 2023 strongly, posting double-digit gains over the calendar year. In the US, the S&P 500 Index rose by 24.2% over 2023, but it is worth noting that the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla) accounted for more than 60% of that return.
- US inflation continued to ease
- The Fed and the ECB maintained their key interest rates
- Politics and geopolitics are likely to be prominent in 2024
A strong end to the year: many – but not all – leading equity markets ended 2023 strongly, posting double-digit gains over the calendar year. In the US, the S&P 500 Index rose by 24.2% over 2023, but it is worth noting that the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla) accounted for more than 60% of that return. The Dow Jones Industrial Average Index rose by 13.7% over 2023 and by 4.8% in December, hitting a new closing high during the month. Elsewhere, having ended 2022 at 3.88%, the yield on the ten-year Treasury Bond also ended 2023 at 3.88%, but rose as high as 4.98% during the year.
“The International Monetary Fund warned that the global economy faces a turning point”
Inflationary pressures on the wane: the rate of US consumer price inflation eased from 3.2% to 3.1% year on year during November, dampened by lower fuel prices. The US Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5% during the month. Updated forecasts suggest that Fed officials expect rates to fall below 5% in 2024. Nevertheless, Fed Chair Jerome Powell warned: “It is far too early to declare victory.”
Risks tilted to the downside: the European Central Bank (ECB) held its key interest rate at 4% and advised that inflationary pressures – which have eased over recent months – are likely to increase in the short term before the rate of inflation finally returns to its 2% target in 2025. The ECB still believes economic risks for the region are tilted to the downside. Against a weak economic backdrop, business sentiment deterioriated in Germany during December. The Dax Index rose by 3.3% during December and by 20.3% over the year.
China under pressure: credit ratings agency Moody’s downgraded its outlook for China’s credit rating from “stable” to “negative”, citing the deteriorating economic outlook, a slowing property market, and the likelihood that financially stressed local governments and state enterprises will require government support. The Shanghai Composite Index fell by 1.8% in December and declined by 3.7% over 2023.
Politics and geopolitics: more than 40 countries will head to the polls in 2024 according to Bloomberg , including the US, India, Russia, Taiwan, Indonesia, and probably also the UK. Meanwhile, the International Monetary Fund warned that the global economy faces a turning point as deepening geoeconomic fragmentation risks pushing the world towards “Cold War Two”.
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