Christmas came early for investors as a Santa rally in equity markets through November and December in particular, left investors with much to cheer. The MSCI ACWI index (which represents 98% of the investable stock market universe globally) finished the year 15% higher than where it began. There was also, finally, good news for bond investors as bond yields fell sharply towards the end of the year thanks to multiple positive inflation readings across the developed world.
Markets are expecting multiple interest rate cuts on both sides of the Atlantic in 2024. One particular press conference from Jerome Powell, chairman of the US Federal Reserve, further poured fuel onto the fire by announcing rate cuts were on the table. He tried to backtrack a couple of days later but to no avail, markets had already made up their mind and asset prices surged higher.
The Bank of England have also tried to quash talk of any imminent interest rate cuts; however markets don’t believe them (much like they have struggled to ever since inflation starting rising). This is good news for mortgage holders re-fixing in 2024 as mortgage rates have dramatically lowered in recent weeks (market leading 5 year fixes of below 4% are available), as these are priced off of market expectations rather than anything the Bank have said or done.
It feels slightly strange to be writing about positive developments as we head into 2024. This was supposed to be the year where risk assets struggled, the year when the era of effectively free money since 2008 finally caught up with the world, the year of businesses failing, high levels of redundancies and unemployment and ultimately a recession. This has not happened yet and it’s not to say it won’t, it very well might.
We often get asked by our Altor clients what is going to happen to stocks, bonds, property etc. over the coming year. The truth is we don’t know and neither does anyone else, despite what they may claim. When Bloomberg asked 22 strategists from the big banks (Goldman Sachs, JP Morgan etc) what would happen to the S&P 500 in 2023, the average prediction was for the index to finish at 4,078 points. It actually finished the year at 4,770, 17% higher than analysts had predicted.
What we do tell our clients is that what happens over the next day, week, month or even year in markets is not particularly relevant to you. What matters is that you have a proper plan and you stick to it over decades. If you do that, you’re much more likely to reach your goals rather than searching for the next quick win.
“The stock market is a device to transfer money from the impatient to the patient.”
Warren Buffett