Market insight November 2023
November saw growth assets rebound over the month. There has been continued positive news around the direction of inflation in major developed markets, with data supporting the view that peaked rate tightening was the main reason for the recovery. The current outlook on the direction of interest rates also helped defensive assets over the month.
The key economic news came from the US, where the October Consumer Prices Index figure came in lower than expected at 3.2% year-on-year, with core CPI hitting a 2-year low. This was driven by a fall in energy prices, however, the Fed continued to manage market expectations that interest rates will be ‘higher for longer’, despite some signs that the world’s largest economy is slowing down.
The inflation story over the month was the same in the UK, with a higher-than-expected reduction in CPI and the headline figure fell to 4.6% in the 12 months to October 2023. This positive economic news fed into growth asset performance with all major indices making gains in their local currencies.
Technology bounced back, leading US equity returns over the month, however, it is Japan that continues to lead the way in gains this year. Investment has flowed from foreign funds into Japanese stocks, amid expectations of stock market reforms and an end to its ultra loose monetary policy after years of stagnant economic growth. This rally was despite Japan witnessing a quarter-on-quarter GDP contraction of 0.5% in the third quarter.
As we continue our market insight for November 2023 and look at factors over the month, stronger corporate results and lower bond yields meant that the growth factor was the best performer. This also led to better returns from ESG portfolios, which have a growth bias. Small-cap’s also rallied strongly and this was at the expense of value stocks, which made the least ground over the month.
Turning to defensive assets, government bond yields declined and the US 10-year Treasury yield fell beneath 4.4% by the end of November 2023, down from the peak of 5% reached in mid-October. This was despite Moody’s downgrade of the US sovereign debt outlook to negative. The equivalent UK gilt also traded higher and now yields under 4.2%.
Turning to the wider bond markets, the entire fixed income space has benefited from lower yields and the anticipation of rate cuts in 2024. Investment grade bonds gained in value, and rising hopes of a soft economic landing supported high yield bonds.
Market insight November 2023 – in summary
In summary as we enter December and the last month of trading for 2023, investors will be paying close attention to the “Santa Claus Rally” period, this is the seven-day stretch starting with the last five trading days of the calendar year, carrying over to the first two trading days of the next calendar year. Since 1950 the wider US equity market has averaged a 1.3% gain over this period. Given the volatility seen this year, investors will be hoping for a positive finish for both growth and defensive assets as we enter 2024.
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