2023 ended on a lower interest rate inspired rally.

Expectations for a sooner end in interest rate hiking cycle, confirmed by a dovish Fed and favourable economic data moved sentiment higher. Global Equities locked a double digit return of around 24%, for the full year, with US equities outperforming European equity markets. Across sectors, the technology sector (+52%), led the gains, followed by communication services sector (+44%) and consumer discretionary sector (+34%). The Artificial Intelligence growth story was key for 2023 technology returns. The only negative performing sectors were the energy and utility sectors. Bond markets also surged as yield expectations shifted lower, ending the year on high single digit returns of 7.3%. The risk on sentiment also boosted high yield investment returns, with a total return of 14% for the year. 

2024 brings its own set of challenges: US election year, ongoing geopolitical tensions, alongside challenges to lower fiscal debt. However, the combination of supportive macro conditions and the start of a monetary easing cycle has shifted market sentiment. One can argue that markets have run ahead of expectations, and this can imply an increase in volatility over the coming months. Even so, we expect that unless inflation accelerates or economic growth disappoints, the central banks’ pivot should lead financial markets higher in 2024. We shift our preferences to risky assets, welcoming opportunities to add cyclicality and growth to our equity allocation and adding interest rate risk to fixed income portfolios.