Strong Markets Close 2023 and What’s in Store for 2024

Is it just me or did 2023 pass us by at lightning speed? After a slow start to the year, we saw banking crisis in the US, heightened recessionary fears that subsided on hopes of a soft landing for most economies, volatility in the cryptocurrency market and two major geopolitical conflicts impacting the markets in different ways.

Here's a deeper dive into the year that was and what we can expect in 2024.?

Not a Bad Year At All!

It has been a positive year with global growth exceeding expectations on most fronts. The reopening of China, fiscal stimuli in Europe and the US, stabilising growth in America, and market optimism, driven largely by luxury goods, tech, ChatGPT, expectations of the Federal Reserve pausing rate cuts, and the bitcoin rally. All this occurred against the backdrop of the largest interest rate increases in decades, a regional banking crisis, an energy crisis, major wars, and recession in parts of the eurozone.

The result was that the stock markets rallied worldwide. So much so that as of December 18:

·????? S&P 500 is up 23.41% YTD

·????? Nasdaq Composite is up a whopping 42.62%

·????? DJIA has risen 12.58%

·????? Nikkei 225 has increased 27.37%

·????? DAX is up 19.06%

·????? STOXX 600 has risen 11.11%

·????? ASX 200 has increased 6.91%

·????? FTSE 100 is the only index to have remained flat, up 0.29% YTD.

A large part of the stock market rally is attributable to mega-cap tech stocks, whom we now lovingly call the Magnificent Seven – Amazon, Apple, Alphabet, Nvidia, Meta Platforms, Microsoft, and Tesla. In fact, Nvidia is up an amazing 241.53% YTD as of December 18, while Meta has grown 168.49%.

Of course, the shift in investor sentiment from recessionary fears to a soft landing in the near future also played a role. Russel Investments’ market psychology index shows high investor optimism despite market gains being concentrated only in a few sectors.?

A Snapshot of Key Economies

Most developed economies have been under stress due to the prolonged monetary tightening through a large part of 2023.

USA

• The Fed embarked on its most aggressive monetary tightening since the early 1980s.
• The government bond yield curve inverted, a classic warning sign of recession, only to rise.
• The ISM manufacturing index fell into contractionary territory.
• But the economy saw above-trend growth.
• Job growth slowed, but the employment rate rose.
• Inflation saw a downward trend.

Europe

• Inflation has been lower than feared while growth has been better than expected.
• Economic growth across the eurozone remained broadly resilient.
• Equities outperformed bonds, driven by the outperformance of cyclicals.
• The Morningstar Europe Index revealed returns of 12.9% YTD as of December 8, driven by countries in Southern Europe.
• Italy was the best performing market, followed by Spain, Germany, the Netherlands and France.
• The UK economy was the worst hit by inflation, although headline CPI inflation fell 4.6% in October due to lower energy prices.
• BoE held interest rates steady at 5.25%, a 15-year high, despite economic worries.Inflation has been lower than feared while growth has been better than expected.
• Economic growth across the eurozone remained broadly resilient.
• Equities outperformed bonds, driven by the outperformance of cyclicals.
• The Morningstar Europe Index revealed returns of 12.9% YTD as of December 8, driven by countries in Southern Europe.
• Italy was the best performing market, followed by Spain, Germany, the Netherlands and France.
• The UK economy was the worst hit by inflation, although headline CPI inflation fell 4.6% in October due to lower energy prices.
• BoE held interest rates steady at 5.25%, a 15-year high, despite economic worries.

Asia

• Japan remained the outlier with its accommodative monetary policy and above-trend GDP growth.
• China saw multiple headwinds, not the least of which was the real estate crisis, which disappointed economies that were hoping to get a boost from the Chinese reopening.
• But the stimulus policies, albeit fragmentary, appear to be stabilising the economy.

How is 2024 Shaping Up?

Stabilizing interest rates and inflation during the latter half of 2023 gives reason for cautious optimism going into 2024. However, the macro backdrop could be challenging for the stock markets in 2024, with disappointing earnings growth and geopolitical tensions likely to weigh on stock performance. In fact, JP Morgan expects only 2%-3% earnings growth for the S&P 500 stocks, with a target of 4,200 for the index.

JP Morgan goes on to say, “At the same time, liquidity continues to contract as major central banks shrink balance sheets at an unprecedented pace and borrowing rates remain restrictive across consumer and corporate segments.”

Conversely, a Bank of America survey shows that 74% of fund managers expect a "soft landing" for the US economy in 2024, while consensus expectations are for 11% earnings growth for S&P 500 companies in 2024.

2024 is likely to be as eventful as 2023. Contentworks Agnecy is Europe’s leading marketing and communications agency. We specialise in the finance and fintech sectors, including neo-banks and PSPs.

Talk to us about your 2024 marketing strategy and content.