GSB Ireland

Market Update November

November has historically been a fruitful month for equities, and it didn’t disappoint this year, with equities shaking off the malaise of the last three months to deliver exceptional returns, led by spikes in the S&P500 and NASDAQ indexes. These gains came from renewed optimism that central banks will begin cutting rates earlier than anticipated on the back of further progress in tackling inflation. With December another historically strong month for the financial markets, there is potential for this positive momentum to continue as we head into 2024.

The only place to start a recap of November would be the equity markets after their sensational rebound. The sentiment around equities heading into November was gloomy after a poor three months. It was bookended by a particularly bad end to October, which saw US equities hit their lowest point in over six months. Investors who panicked and sold out of the markets towards the end of October as equities dropped will have been ruing their luck in November as equities soared. As of November 29th, the S&P500 was up over 8%, and the NASDAQ index was up over 11%, erasing almost all their losses from the last 3 months in the process. The STOXX Europe 600 index was up over 5%, and there was more stellar performance from Japanese equities, with the Nikkei 225 up by just under 8% as of November 29th. The FTSE 100 was comparatively muted, with gains of just over 1.50%, but nothing would be able to take the shine off a fantastic month for investors.

Yields on longer-term bonds declined in November after hitting new highs in October, with the 10-year US treasury falling from a peak of 4.98% to 4.30% as of November 29th. Yields on longer-term bonds have fallen further than the yields on short-term bonds with investors betting that rate cuts will come sooner than had been previously anticipated. This fall in bond yields was mirrored around the world, with the 10-year UK Gilt rate falling from a high of 4.66% in October to 4.14% as of November 29th.

Inflation has been a dominant topic of discussion throughout the year, but as we approach the end of 2023, there can be no doubt that serious progress has been made to tackle the rampant rates we saw over the last year. The UK has struggled more than its Western counterparts in getting inflation under control, but figures reported in November showed the Bank of England’s efforts are starting to pay off, with inflation dropping from 6.7% to 4.6%, 0.2% better than the consensus forecasts and largely due to falling energy prices. This would suggest interest rates could be expected soon, but Bank of England governor Andrew Bailey warned that interest rates would not be cut in the ’foreseeable future’. US inflation had been on a rebound recently, with no decline in the last 4 months, but that changed this month with a drop from 3.7% to 3.2%, nearing the previous 2023 low of 3%, which was hit in June. The Eurozone continued the trend of inflation decline with a drop from 4.3% to 2.9%, in line with consensus expectations.

The sharp drop in inflation in advanced economies has led to a stand-off between investors and central bankers, with investors clamouring for and betting on lower borrowing costs becoming a reality early next year. However, central bankers have been quick to urge caution amidst fears that the fight against inflation is still ongoing and have suggested rate cuts may not come as soon as they are now being forecasted in the futures markets. As previously mentioned, Andrew Bailey has stated there will be no interest rate cuts in the ‘foreseeable future’ and ECB president Christine Lagarde has said claims of victory are ‘premature’ and expects an inflation rate reacceleration in the next few months. While it is uncertain when we will see rates begin to get cut, it seems we have almost certainly passed the point of further rate hikes, but keeping rates at elevated levels will increase pressure on struggling economies and impact growth, highlighting the dilemma central bankers are facing as we head into 2024.

If there is a lesson to be learnt from November, it is important to keep emotions out of your investment decisions and stay the course. Investors who were spooked by the last three months of equity performance and sold will have missed out on the best month of 2023 for equities, whereas investors with a long-term plan did not run the risk of mistiming the market. Consistently timing the market is impossible for even the most sophisticated investors, but controlling the amount of time you are invested in the market is something we can all control, and the evidence shows that the longer you are in the market, the higher your probability of profit.

Our November Blogs Focus

This month’s newsletter covers a range of subjects, from The High Cost Of Market Timing For UK Investors to A Guide To Estate Planning Without Children and Why Fixed Term Deposits Won’t Secure Your Financial Future.

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