Quarter in Review Q4 2023
- Quarter in review
- 23.01.24
Key themes
- Markets staged a vigorous rally in the last two months of the year, with both equities and bonds posting high returns for the fourth quarter.
- US data showed signs of slowing in the economy, while inflation came down to levels not far from the central banks’ 2% target in both the US and Eurozone. As inflation is expected to fall further over the next 12 months, central banks suggested policy rates may have peaked, and Federal Reserve officials spoke to the potential for rate cuts in 2024.
- Global asset markets rose as lower policy rates were increasingly priced in and conviction in a soft landing for the economy – involving falling inflation and growth but no recession – deepened. Bond yields fell sharply, benefiting both bond and equity markets.
Markets snapshot
- Global equities, as represented by the MSCI All Country World Index (ACWI), rallied by 9.5% (6.5% in euro terms) over the quarter. As inflation continued to fall in the US and Europe, markets increasingly priced in interest rate cuts for 2024.
- Developed-market equities returned 10.0% in local currency terms (6.9% in euros).
- Emerging-market (EM) equities were up by 5.6% (3.4% in euros), underperforming developed markets. The asset class was supported by rallies in certain markets like Mexico (15.8% in local) and Brazil (14.6% local) amid easier financial conditions.
- Bond yields fell over the quarter (and so prices rose) as markets priced in interest rate cuts for 2024. The ICE BofA 5+ Year Euro Government bond index rose by 10.0%. European investment-grade (IG) corporate bonds rose by 5.6%. Global high-yield bonds returned 6.7%. EM local debt rallied by 4.1%. EM hard debt rose by 8.4%, benefiting from a fall in the US dollar. Peripheral Eurozone bond spreads narrowed as falling rates improved debt sustainability for more indebted nations like Italy.