2023 was the year of the recovery. In 2022, stocks had their worst performance since the financial crash of 2008, forgoing a large chunk of their post covid rallies. Pessimism was a common theme across the markets in 2022 with a sense of unknown lingering going into 2023. Thankfully, the nightmare of 2022 was quickly forgotten and 2023 proved to be the badly needed hero for investors. Investors who invested in a higher equity fund at the beginning of 2023 benefitted from upwards of 22% gains albeit rocky at times.
What has driven growth in 2023?
Growth in 2023 was mainly driven by the tech sector, more specifically the magnificent 7 & the optimism surrounding AI. The magnificent 7 (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla) index price increased just shy of a combined 100%, which was a large driver for investment returns across a lot of portfolios.
Closely linked to the tech sector was the emergence of AI technologies. The developments in this industry sparked a bullish response from the markets. Markets optimism on AI and its potential impacts led a strong rally after the Silicon Valley Bank collapse of March ’23.
Markets plateaued around July & August time and began falling towards October time due to mounting fears surrounding inflation and interest rate hikes. Thankfully the main central banks around the world showed indications that surging inflation rates were beginning to falter, and this news led to a strong year end. Markets responded positively to a hold on rate increases, closing out an upbeat year for investment markets, particularly equities.
What to expect in 2024
Markets have priced in no more interest rate increases. Although Central Banks have not ruled it out, the markets are not considering any more rate increases, quite the opposite in fact; many market commentators are expecting reductions in 2024. This is no doubt a welcome prediction and could be a good sign for the year ahead should it materialise.
On the other hand, roughly half of the world’s population will be voting in a democratic election in 2024 and this poses a geopolitical risk to the markets. The most notable election of them all is the US presidential election in Q4, and all eyes will be firmly fixed on this and its potential impacts.
Despite all this, there is no immediate concern for investors going into 2024, however history tells us that we never know what is around the corner, but nothing that a well thought out strategy can’t combat!
Summary
All in all, 2023 was volatile but if you stayed the course, you benefitted from that volatility. It was a year that really tested the resolve of the markets but in doing so, highlighted the importance of investing in high quality assets and having a strategy. 2024 presents lots of opportunities and our house view of investments is one of optimism.
