Market Review: What happened in Q4 ’23 and Outlook for 2024

Despite high inflation numbers and interest rates, the conflicts in the Middle East and Ukraine, and ongoing concerns over China (notably the real estate sector), 2023 ended with markets in positive territory.

The final quarter of 2023 provided strong performance, clawing back some of the previous year’s declines. The gains were primarily driven by the suggestion that inflation has settled, leading to the growing belief that central banks will cut interest rates sooner than previously expected.

2023, a good year?

In summary, 2023 was a good year for investors as pessimistic expectations were surpassed and financial markets priced-in significant reductions in interest rates for 2024. There has been a shift in tone by central bankers, with a “soft landing” possible as most major economies have fared better than previously expected in this higher interest rate environment. Whilst UK equities underperformed, they outperformed the previous year. US equities were the standout performers as the world’s largest economy recorded surprisingly good growth, the labour market remained relatively robust, and year-on-year core inflation measures eased. However, as a note of caution, around 80% of the S&P500’s (the 500 largest companies in the US) 2023 return was thanks to the performance of seven technology shares, “the Magnificent Seven”. These are Apple, Microsoft, Alphabet, Amazon, Tesla, Nvidia, and Meta, and excluding these, the US market performed average at best.

Outlook for 2024

Looking ahead, there is plenty of political uncertainty on the horizon, with 2024 being a year that more voters than ever in history will head to the polls (49% of the global population) with the UK, US and many other elections set to take place. Whilst there are some signs of economic weakness and continued concerns over a recession both here and in America, a source of optimism for this year is the more widespread nature of the market recovery during the last quarter. Savings rates and mortgage rates do seem to have peaked and are starting to come down.

However, the war in Ukraine rumbles on with varying degrees of Western support. The Israel-Hamas conflict continues, which has shown a few signs that it could escalate. Up until now, there has been no major stock market reaction to the turmoil in the region and the primary market concern centres on oil production and trade routes. Whilst neither Southern Israel nor the Gaza strip play host to major oil and gas infrastructures, any escalation of a wider conflict in the Gulf region could send oil prices soaring, with the major concern being Iran, which has had its oil production sanctioned in recent years, controlling the Strait of Hormuz – a route that facilitates the transport of 15% of global oil supply.

We continue to take a long-term approach; a well-diversified portfolio continues to be the priority to counteract volatility and attempt to ‘smooth out’ returns.