2024 January Economic Review

An Overview of the Economic Landscape

As we reflect on the past year, there is some solace that despite fears of recession, high interest rates, US and European bank collapses and an escalation of hostilities in the Middle East , we’ve managed to avoid a significant economic downturn.

Importantly,  the US , as the world’s largest economy showed robust growth, the best we’ve seen since 2021. American consumers have continued to spend with a sense of cautious optimism, which has been a boon for their economy.

In other parts of the world, however, the economic picture has been less rosy. The UK and Europe have experienced somewhat patchy growth, and China, while still growing, hasn’t met expectations. They’ve had to step in with measures like cutting interest rates to support their economy, largely due to issues in their property market.

Towards the end of the year, we saw a glimmer of hope regarding inflation. In the US and Europe, inflation rates began to slow down, leading many to believe that we might have seen the highest point of interest rates. The US even hinted at a possible rate cut in 2024. The UK’s inflation rate also fell, but the Bank of England suggests that high interest rates might stick around for a bit longer.

Insights into Bond and Stock Markets

Last year, both the bond and stock markets ended on a high note. This was particularly true for the final quarter, where we saw significant gains across the board. Interestingly, corporate debt outperformed government bonds over the year.

In the stock market, the US led the way, followed by Europe and Japan. The UK’s largest companies showed positive returns for the third year running, despite challenges in China impacting Asian and emerging markets.

A notable point in 2023 was the dominance of a few large US companies, like Microsoft and Apple. This made the US market seem expensive, but if we exclude these top performers, valuations appear more reasonable, especially among smaller US companies. This trend isn’t unique to the US; in many regions, smaller companies have been overshadowed and may now present valuable opportunities.

Looking Ahead to 2024

As we move into 2024, a significant year politically, with elections in the US and possibly the UK, we remain cautiously optimistic. Political developments can influence markets, but this is not necessarily a negative for markets; as political parties may try to rally support with vote grabbing giveaways. Although any anti-business rhetoric, from any party, would not be taken well by markets. As always there are risks in both a positive and negative direction.

All portfolios carry a degree of risk and as such their unit price will move both up and down in different measures depending on their risk rating. We have already factored into our recommendations that the value of your investments will fall as well as rise at different times.

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27 Oct 2023

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