Investors began 2023 in a pessimistic mood after the trials of 2022, but are ending on a festive high with stock markets enjoying a good old-fashioned year-end “Santa rally”.
The US stock market looks like finishing the year 25 per cent higher, driven by yet another tech stock frenzy, this time over the artificial intelligence (AI) revolution, which saw chip maker Nvidia rocket almost 250 per cent.
The “Magnificent Seven” mega-cap US tech titans (Apple, Microsoft, Google-owner Alphabet, Amazon, Nvidia, Facebook-owner Meta and Tesla) conquered the investment world all over again, but they weren’t the only successes.
It was a good year for cash, as interest rates topped 5 per cent, as did bond yields, while gold smashed all-time highs in December.
Some warn the rally has gone too far and investors now risk starting next year by being too optimistic instead.
Despite the bright end to the year, investors were “largely bearish” for most of 2023, says Yves Bonzon, group chief investment officer at Julius Baer.
“This explains the magnitude of the November rally, when many were forced to change their minds. The phenomenon continued into December and was reinforced by the US Federal Reserve’s announcement that it is considering cutting interest rates in 2024,” he adds.
The US economy is on course to expand at 2.1 per cent in 2023 but that is forecast to slow to just 1.4 per cent in 2024, and Emma Wall, head of investment analysis and research at Hargreaves Lansdown, warns: “2024 is not going to be a year of rapid or sustained growth.”
Countries and corporates that loaded up on debt in the zero-rate era will struggle to meet today’s higher borrowing costs.
“Any economic wobble will hit tech and growth stocks hardest, and money will flow to lower risk assets,” Ms Wall says.
Today’s high US stock valuations make them less attractive, while “macroeconomic headwinds in Europe are just too tough to justify investing new money in the region this year”, she adds.
Ms Wall is more optimistic about Asia and emerging markets, where stocks “are trading at a significant discount compared to their developed market counterparts”.








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