Many events came together to shape investors’ decisions in 2023, from rising interest rates and high inflation to war in Ukraine and the Middle East. With 2024 just around the corner, what lessons should investors take away from the last 12 months?
First, according to Tim Bennett, head of education at broker Killik, it is important to remember that turmoil and uncertainty on the world stage doesn’t necessarily have negative impacts on stock market performance.
Equity markets in the US and the UK have not been badly affected and while they still could be down the line, the reason they have proven so resilient is that stock prices are based on the future, not the present or the past. And right now, markets are hoping for a respite from interest rate rises and perhaps even a cut in 2024. That is good news for many stocks and investors.
MACRO EVENTS MATTER
After two decades during which the world was relatively calm and stable, the US is now facing increased tension on three fronts – the Middle East, Ukraine and Asia. Meanwhile, elections loom across most of the major Western economies, including the US. That is quite a destabilising backdrop for markets and investors, but it is also one they need to adapt to quickly as a ‘new normal’. That means everyone should expect greater volatility but not necessarily a sustained bad patch for stocks.
10 big questions for 2024: the markets outlook for the year ahead
It is becoming increasingly clear that markets still watch central banks as closely as ever for hints about the future direction of interest rates. The news is better here – with inflation showing signs of slowing, interest rates are unlikely to rise further in 2024 and may even fall later in the year.
Investing in a higher rate world: what's worked before and what could work now
BONDS AND SHARES SOMETIMES MOVE IN LOCKSTEP
A point of confusion for many investors in 2023 was the fact that although shares and bonds are supposed to move in opposite directions – and therefore act as diversifiers for each other – that hasn't happened for much of the past year.
The reason for this is a peculiar and atypical cocktail of high geopolitical uncertainty together with inflation worries and concerns about US indebtedness in particular. The good news is that should inflation subside, some of the factors which have held bond prices back will fall away, something we have already started to see towards the end of this year.
