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Q4 2023 Market Commentary


Global Markets

Note: All quoted equity performance figures are in GBP terms.

Markets across the world finished the year on a positive note as easing inflation data gave investors optimism around the potential for interest rate cuts in 2024, leading to a rally in both equities and bonds. The MSCI ACWI index finished the quarter up 6.3%, as Developed Markets equities (up 6.7%) outperformed Emerging Markets (up 3.3%).

The S&P 500 index ended the year just shy of its all-time high, set in January 2022, as the US stock index finished the quarter up 6.9%. Minutes from the Federal Open Market Committee’s latest meeting show that officials expect to cut the base rate by 0.75% in 2024. Stocks rallied on this news, with interest rate sensitive sectors such as IT, consumer discretionary and real estate all performing strongly. European equities also had a strong quarter on the back of expectations that there would be no further interest rate hikes. Real estate and IT performed strongly, whilst healthcare and energy struggled.

Stocks in the UK also gained over the quarter, with the FTSE 100 index finishing up 2.3%. Small and mid-cap stocks outperformed in Q4 as many larger companies were negatively impacted by sterling strength against a weaker US dollar. Some of the UK’s relative underperformance is due to a lack of exposure to technology stocks, such as those making up the Magnificent Seven, as well as a heavy weighting to international mining companies. These companies have struggled as commodity prices have remained weak throughout 2023, dragging on the index.

Despite concerns over conflict in the Middle East, Emerging Markets equities finished the year positively as hopes of a soft landing, and interest rate cuts in the US, were positive for returns. Chipmakers in Taiwan and South Korea fared positively as investor enthusiasm over artificial intelligence continued. Despite a late rally, Chinese stocks struggled and finished the quarter down 3.8%.

Equity Styles

Quality was the strongest performing equity style over the fourth quarter. Many of the Magnificent Seven stocks that dominated equity markets this past year are included in this index due to their strong balance sheets and earnings growth – with the MSCI ACWI Quality index climbing 12.5%. The MSCI ACWI Value index also outperformed global markets, up 9.8%. The MSCI ACWI Momentum index underperformed global markets over Q4, gaining only 6%.


There were no further interest rate hikes in Q4 as the Fed, The Bank of England and the European Central Bank all held rates steady as inflation cooled.

In the UK, annual inflation dropped from 4.7% in October to 3.9% in November, a significant decline from the 10.1% figure at the start of the year.

In the US and Europe, inflation figures are coming in even lower. US CPI came in at 3.7% in September before slowing this quarter to 3.2% in October and 3.1% in November. Dovish comments from Fed Chair Jay Powell and other policymakers indicated to markets that rate cuts are expected in 2024. In Europe, annual inflation fell from 2.9% in November to 2.4% in October.

Fixed Income

Note: All quoted fixed income performance figures are in GBP-hedged terms.

The final quarter of the year was a positive one for fixed income, with the Bloomberg Global Aggregate index rising in November by its highest monthly amount since the Global Financial Crisis. This was largely driven by a shift in monetary policy expectations across the globe.

Government bonds had a strong quarter across the board, with gains driven by anticipation of rate cuts in 2024. Dovish comments from the Fed in December helped extend a rally in US treasuries, while inflation coming in lower than anticipated in the UK led to gilts performing strongly over the quarter.

Global Investment Grade bonds finished the quarter up 7%, marginally outperforming Global High Yield, which finished up 6.4%. The credit spread of both indices tightened over Q4, contributing to the outperformance.

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