GSB Ireland

Market Review – December 2023

The book has closed for another year, and 2024 is upon us. The outlook as we head into the new year is vastly different to the sentiment around the markets this time last year. 2022 delivered dismal performance and offered little clarity on key issues such as the rampant inflation or the supply chain issues crippling global trade.

This year, however, the financial markets have delivered extremely strong performance. We have seen serious progress in tackling issues driving uncertainty, with inflation gradually returning to normal levels and the global economy proving to be more resilient than anticipated in the face of aggressive interest rate hikes. The financial markets will always carry a degree of uncertainty, which is why they are so difficult to forecast. However, the picture heading into 2024 appears much clearer than this time last year.

The S&P500 capped off a monster year with a gain in December of 4.42%, bringing its yearly gain to 24.73%, staggering figures that mean the S&P500 is close to a new all-time high. The tech-heavy NASDAQ index delivered returns of 5.52% in December, and buoyed by the ‘magnificent seven’ stocks who dominated 2023, it ended the year up 44.52%. The performance of the US markets in 2023 is especially poignant for investors, given the weighting applied to US equities in most portfolios, particularly those with a passive approach. The chart below showing year-to-date performance underscores how strong the contribution of the ‘magnificent seven’ mega-cap technology stocks was to the gains delivered by the US markets.

The performance of US equities may have taken the headlines in 2023, but it was also a strong year in Japan after a long period of malaise, with the Nikkei 225 index finishing the year with a gain of 30.13% after a largely flat December. European equities finished the year strong as the STOXX 600 index was up 3.77% in December, ending the year with gains of 11.67%. The FTSE100 has lagged in comparison to other major equity markets this year, but a good December saw the FTSE100 close with a 2.37% gain on the year, an unspectacular performance, but the FTSE100 was one of the most resilient markets during the downturn of 2022. In contrast, indexes in China and Hong Kong struggled mightily in 2023 with the SSE Composite down -1.87% in December and -4.54% for the year, while Hong Kong’s Hang Seng Index posted a gain of 1.29% in December but a dismal -15.38% loss for the year. Geographic diversification remains a core part of our philosophy as GSB, and the variation in performance across regions highlights the value of utilising geographic diversification when constructing a portfolio.

As previously mentioned, inflation was a key concern heading into 2023, but as the year progressed, we began to see serious inroads into tackling the issue. The central banks opted for aggressive interest rate hikes that brought rates to levels not seen since 2008, and it has worked with inflation declining massively across the globe. Inflation in the US ended the year at 3.1% after being reported at 6.4% in January 2023. Inflation in the Eurozone was reported at 8.6% in January 2023 but ended the year with the last reported figure of 2.4%, extremely close to the long-term target of 2%. The Bank of England struggled to control UK inflation for large parts of the year, but the second half of 2023 saw inflation begin to fall rapidly, ending the year 3.9% after opening 2023 with figures of 10.1%.

This rapid decline in inflation will provide the central banks with the required confidence to opt for interest rate cuts in 2024 with forecasts on the timeline and frequency of interest rate cuts becoming increasingly bullish as 2023 progressed. A poll of economists conducted by the Financial Times found that most expect the European Central Bank to begin cutting rates in the 2nd quarter of 2024, while Federal Reserve officials forecasted cuts of 0.75% in 2024, suggesting the tide has turned. While there will be hesitation in deciding to cut rates as central banks aim to avoid a resurgence in inflation, it appears there is increasing confidence that the issue of inflation has fallen back under control, a welcome sign for both investors and economies struggling to grow in the current climate of elevated borrowing costs.

December often provides investors with a satisfactory year-end, and it delivered again, capping off an extraordinary recovery from the lows of 2022. With equities showing signs of serious momentum, bonds offering yields not seen since the global financial crisis and rate cuts on the horizon, there are plenty of signs for optimism in the financial markets as we head into the new year.

Our December Blogs Focus

This month’s newsletter covers a couple of subjects: Tax-Saving Measures and Make The Most of Your Wealth. You can find these blogs by clicking on the buttons below.

Tax-Saving Measures
Make The Most of Your Wealth

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