Investment Market update: January 2024

After a disappointing third quarter, almost all asset classes delivered positive returns in Q4. Learn how the developments could affect your investments.

5 min read

Whilst this article focuses in the main on December 2023 market news, there are references to events and market performance from previous months.

December saw rallies across many of the major global stock markets, driven in part by optimism as a result of falling inflation. Read on to discover how the markets reacted to economic developments and what it could mean for you.

Inflation in the US fell in November, providing a welcome signal that the Federal Reserve’s (Fed) rate hikes are having the desired effect. The Consumer Prices Index (CPI) fell to 3.1%, a significant drop from the 6.5% that was recorded in January 2023¹.

Additionally, the Personal Consumption Expenditures price index dropped to 2.6%, its first decline since April 2020¹.

The fall in inflation rates led the Fed to relax its stance on interest rates for the coming year. At its December meeting, the committee held rates steady at 5.25% – 5.5% but pencilled in three rate cuts in 2024².

US stock indexes ended the year on a high following the fall in inflation data and potential interest rate cuts in 2024. Across 2023:
• The S&P 500 rose by 24.2%
• The Dow Jones Industrial Average rose by over 13%
• The Nasdaq Composite returned an exceptional 43%³

The returns were driven largely by the success of the so-called “Magnificent Seven”: tech corporations including Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta Platforms and Tesla³.

There was more good news in the UK regarding inflationary data; the CPI rose by 3.9% in the 12 months to November 2023, down from 4.6% in October4. The fall was influenced in large part by the transport, recreation and culture, and food and non-alcoholic beverages sectors⁴.

The drop led more to believe that the Bank of England (BoE) could cut interest rates sooner than previously anticipated in 2024. At its December meeting, the BoE maintained its stance that it is too early to consider reducing rates⁵.

The larger-than-expected fall in inflation also buoyed markets, though not quite to the extent of the US indexes. The FTSE 100 ended the year up 3.8%, with an average dividend yield of 3.7%⁶. The FTSE 250 had a slightly more successful year, returning around 4.5% for 2023⁷. The lacklustre performance of the UK indexes is in part due to a lack of exposure to the technology sector, which has performed well this year⁷.

Though the country has avoided a widely predicted recession in 2023, new figures released in December showed that the economy contracted by 0.1% in Q38. This could mean that the economy is at risk of a recession at the beginning of 2024⁸.

Europe

Inflation continued to fall in the eurozone, dropping to 2.4% in November 2023, only slightly above the European Central Bank’s (ECB) target of 2%⁹. Despite this, the ECB chose to hold rates steady at 4% – a record high – at its December meeting⁹.

While the economic downturn eased in November, experts continue to predict a contraction over the course of Q4, following a 0.1% contraction in Q3¹⁰.

Despite this, European stock markets ended the year on double-digit returns. The pan-European STOXX 600 rose by 12.6% across 2023¹¹. Italian shares were the highest performers, returning around 30% for the year while Swiss and British indexes lagged behind¹¹.

Asia

The Chinese economy has failed to live up to the expectations of a recovery after relaxing Covid restrictions in late 2023. A weak property market and low consumer spending alongside high youth unemployment have stalled its growth. Despite this, economists expect that China will still hit its growth target of 5% for 2023¹².

The economic disappointment has weighed on stock markets; China’s blue-chip CSI 300 index fell more than 11% in 2023 in a stark contrast to most other indexes¹³.

Japan’s Nikkei 225 was the best-performing equity market in Asia for 2023, returning 28% across the year¹⁴.

What this means for you

After several years of uncertainty, it seems as though most global stock markets have ended 2023 on a high. While this is certainly good news for investors, it’s important not to allow your emotions to run away with you.

Remember that fluctuations in value are part and parcel of investing in the stock market. Though returns are positive today, past performance is no guarantee of future returns.

So, before making any changes to your investment portfolio as a result of the gains seen across 2023, make sure you’re also considering your long-term goals. Your financial planner can help you to ensure your portfolio is appropriately balanced to enable you to grow your wealth sustainably and progress towards your goals.

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.

Past performance is not a reliable indicator of future performance. The value of your investment (s) and the income derived from it, can go down as well as up and you may not get back the full amount you invested.

Sources

FP2024-020

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