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The Macroeconomic Summary

The fourth quarter began with low expectations as rising long-term interest rates extended the third quarter's decline in equity markets. Globally, both equity and bond markets reached quarterly lows near the end of October due to declining investor sentiment and confidence. However, the release of positive economic data, coupled with better-than-expected corporate earnings and improved business activity reports, initiated a market turnaround in November.

The resilience of the US jobs market bolstered consumer health, leading to better-than-expected consumer spending and economic growth. Additionally, inflation data softened faster than anticipated in the US, UK, and Eurozone. Neutral monetary policy guidance from the US Federal Reserve spurred a rapid and positive change in investor confidence. Consequently, both equity prices and long-term interest rates reversed direction, resulting in one of the strongest short-term rallies in the US equity and bond markets in recent years.

In the bond market, after causing much pain for investors in the first 10 months of 2023, the yield on the 10-year US Treasury ended the year roughly where it started at about 3.9%. In the equity market, after some volatility, the S&P 500 Index gained 11.2% in the fourth quarter and ended the year about 25% higher than where it started. However, these gains were heavily concentrated in a handful of shares known as the “Magnificent 7,” which were responsible for nearly two-thirds of the S&P 500 index's gain in 2023. A closer look at the figures shows that 72% of the 500 companies held in the S&P 500 underperformed the index - a record number. This trend extended to US mid- and small-cap, other developed market, and emerging market equities.

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About the Author

Samuel van Tonder
Portfolio Manager, Sasfin Wealth

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