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2023 Investment Market Summary

  • 2023

After a challenging 2022, which saw heavy drawdowns across many global equity markets – as well as US & UK corporate bonds and UK gilts, suffering their worst years since records began – 2023 began with investor confidence drained and with many retail investors fleeing to the supposed safe haven of cash. Fortunately, 2023 proved to be a positive year for both equity and fixed-income investments, driven in large part by both a decrease in interest rate expectations prompted by falling inflation and the burgeoning theme of Artificial Intelligence (AI).

Towards the end of 2022, ChatGPT, a large language model chatbot, was launched by OpenAI and took the world by storm – with the software able to generate unique, detailed, and articulate responses on almost any issue. Market participants immediately started to theorise on the applications and implications of such technology, with a group of companies known as the ‘Magnificent 7′ – Microsoft, Apple, Meta, Amazon, Tesla, Alphabet, and most notably Nvidia, all-seeing significant share prices appreciation. Indeed, the share price of Nvidia rose +239% throughout the course of 2023, with many analysts and fund managers we met convinced the stock still has room for growth since their chips are the most in-demand and complex on the market. Whereas many investors will naturally fear a repeat of the dot-com bubble at the onset of the millennium, there is no doubt that AI could have a dramatic effect on global productivity and growth, with the potential economic benefits yet to be fully envisioned.

While 2023 was generally positive, it did face a number of challenges, one of the most notable being the regional banking crisis in March. Initiated by the closure of Silvergate Capital, Silicon Valley Bank subsequently announced an urgent need to raise $2 billion in capital, prompting credit rating agency Moody’s to downgrade the bank’s rating, triggering widespread panic and mass withdrawals – and ultimately resulting in the bank’s failure and regulators assuming control. Financial contagion fears ensued, forcing the US Treasury, Federal Reserve, and FDIC to assure full compensation for depositors’ losses, easing market concerns and helping avoid further bank runs. In Europe, Credit Suisse capitulated after years of struggle, with UBS acquiring their rival in a deal brokered by the government of Switzerland and the Swiss Financial Market Supervisory Authority. While there were fears throughout 2023 that these events could lead to a full-blown financial crisis, it became clear that the largest, most systemically important banks have far greater financial robustness than they did in the 2008 crisis, with the market narrative soon moving back to its positive footing.

Another challenge for the global community came in October in the form of a Hamas-led invasion of Israel on the 7th of the month. Militants breached the Gaza-Israel barrier, killing over 1,000 Israeli civilians and taking around 240 hostages. These attacks were greeted with total fury and condemnation by the Israeli government and a declaration of war the following day. Even though it may seem insensitive to speak of the market impact of an event which has seen such terrible human cost over the last few months – it is important to note that Israel makes up only around 0.16% of the FTSE All-World index and global share price performance has been largely untouched by the conflict. One area of concern for market participants has been the impact on the oil price – though whereas it did spike around 5% higher in the immediate aftermath of the attack, Brent Crude actually ended the year at around $77, lower than the $84.50 it was on 6th October.

Perhaps the most welcome development for markets in 2023 came in the form of sharply decreasing levels of inflation, with the UK seeing their prints fall from peaks of 11.1% in October 2022 to 4.6% twelve months later. Similarly, the US saw a decrease from a peak of 9.1% in their June 2022 print to 3.1% in November 2023. These decreases in inflation helped temper market expectations surrounding interest rates, most notably in November and December – which buoyed fixed income and equity returns. The S&P 500; for example, rose +15.85% from its relative lows on 27th October through to the end of December, with it rising +24.23% over the entire course of 2023. Similarly, in the fixed income space, the Markit iBoxx GBP Corporates 1–15-year index rose +9.50% over the course of the year – with the majority of those gains (+7.48%) coming after 27th October.

Looking to 2024 and beyond, there are clearly many reasons for optimism in equity and fixed-income markets – with interest rates having now peaked in our view around much of the Western world, inflation falling, and the US primed for a ‘soft landing’ whereby inflation is tamed without an economic recession occurring. There is no doubt that the coming years will, at times, witness market turbulence as different asset classes are buffeted by known unknowns.

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