Market review 2023: month by month

Posted 8 January 2024 by Matthew Hull

What goes up must come down. And as far as markets are concerned, what went down in 2023 must go up, as the calendar year 2023 felt like holding a mirror to 2022.

Global markets certainly exceeded expectations, primarily driven by the substantial performance of mega-cap technology stocks. The prevailing sentiment shifted from anticipating an imminent recession to market participants fully expecting a soft landing.

A combination of a robust economy, corporate earnings surpassing expectations, and an expected end to the Federal Reserve’s interest rate hike, were the key factors behind market movements. The emergence of artificial intelligence technologies also lifted investor sentiment in key industries in particular.

Despite the current levels of investor optimism, it’s important to remember that the key concerns at the start of 2023 (growth, restrictive monetary policy, and geopolitical tensions) remain.

We find most reviews tend to be overly influenced by the end of the period in question, so we’ve taken the opportunity to consider the pertinent issues across the markets, month by month:

Then and now: Market's flex strength in 2023 - a reversal of 2022's pain

Market strength.png


Markets rallied, spurred on by global inflation continuing to fall back towards more manageable levels and in turn, interest rate expectations for major central banks beginning to slow. In January, US inflation dropped to 6.5%, after peaking at 9.1% in 2022. The UK and Europe remained at higher levels (10.5% and 8.5% respectively), albeit below the peak levels seen in late 2022. The US Federal Reserve once again slowed the pace of its interest rate rises, hiking rates by just 25bps in the first meeting of 2023, in line with market expectations.


Markets failed to continue momentum in February, as positive economic data indicated that recession may not indeed be imminent. Investors reassessed their expectations for both the peak in interest rates and the subsequent pace of rate cuts.


The collapse of SVB and wider pressure on US banks caused volatility in financial stocks, as well as causing the Fed to reconsider its monetary policy path in order to avoid placing an increased strain on financial companies. The Fed abandoned its previous plans to raise rates by 0.5% and instead increased by 0.25% in the March meeting. Commentary from Chairman Jerome Powell told markets that future increases are not certain and will be dependant on incoming economic data.


UK inflation offered another upside surprise, remaining above 10% for the 7th consecutive month. Meanwhile the US saw headline CPI fall more than expected to 5.0%, however core CPI which excludes food and energy costs rose to 5.6%, keeping the Federal Reserve cautious about easing off its interest rate hikes.


Market sentiment was dominated by investor fears of a potential US government default; an agreement was signed with two days to spare which suspended the US debt ceiling until 2025, when another vote will be required. Despite a resolution, markets ended the month lower.


Markets ended the first half of 2023 on a high. US CPI continued to fall, whilst US core inflation surprised to the downside, increasing investor hopes that inflation may reach the Fed's 2% target in the near future. Despite Fed chair Jerome Powell commenting that further hikes were likely, equities ended the month higher.


There was continued positive sentiment as investors hoped that US rates could be reaching their peak. US CPI data released in July fell by more than anticipated, with headline inflation falling to 3.0%, while core inflation hit 6.9%. US GDP showed strong Q2 growth of 2.4%, ahead of the 1.8% economists forecast. Economic growth paired with lower inflation has increased investor hopes of a soft landing for the US.


Investor fears of higher interest rates spiked after FOMC meeting minutes revealed that “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.” The suggestion of further rate increases pushed markets lower despite US headline and core inflation both coming in lower than expected. PCE price data that was in line with expectations and an unexpected rise in US unemployment from 3.5% to 3.8% calmed fears of any further rate increases.


Markets were pushed lower by continued high interest rates and rising oil prices. The Federal Reserve didn’t raise rates at the September meeting, however the Fed's dot plot appeared to signal that there could be one more rate increase in 2023, while the pace at which rates were forecast to fall in 2024 was slower than the market's current expectations. This news helped to push yields on US 10-Year treasuries to 4.57%, the highest level seen since 2007. Brent Crude rallied by 9.73% across September, causing investor concern that higher fuel prices could keep inflation above the target rate.


Markets fell across the board in October, as concern over the ongoing confilct in the Middle East pushed investors towards traditionally safer assets. Stocks were also hit by the rise in treasury yields, with the US 10-Year bond yield rising by 0.33% to end the month at 4.90%, the highest levels seen since 2007. Comments from Federal Reserve Chairman Jerome Powell were a driver behind surge in yields, as he told markets that a strong US economy could mean rates need to remain higher for longer.


Gains in markets were initially driven by the view that central banks had reached peak interest rates, fuelled by comments from key central bankers. Lower than expected headline and core CPI figures from the UK and US furthered the market's view that interest rates had peaked and lead investors to start pricing in rate cuts for the first half of 2024.


Markets rallied in December, spurred on by a dovish statement from Fed chairman Jerome Powell, which came after the Fed's decision to leave rates unchanged. Powell told investors that the Fed was proceeding carefully after raising rates “well into restrictive territory” and acknowledged that higher rates had slowed economic activity. The dovish comments from Powell were reinforced by the release of the FOMC’s dot plot, which showed 75 basis points worth of rate cuts estimated to occur in 2024, significantly more cuts than previously estimated.

And what about 2024?

Although economies have so far coped remarkably well with higher rates, how long that can last is a matter for debate. The market consensus is that rate cuts are coming, and coming quickly. We expect volatility around central bank decisions should they not go as expected. Earnings expectations are also fairly elevated, and inflation assumed to be an issue in the rear-view mirror. None of these are reasons to drastically alter one’s long-term portfolio allocation however, as there are always known risks on the horizon (and of course unknown and unknowable ones as well). 

As always, we don’t look to speculate in short-term market movements; rather to invest in long-term quality investment opportunities that we believe in. Here’s to 2024! 

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Matthew Hull

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Matthew Hull