As we delve into the intricacies of 2023 and the unfolding events in 2024, the global financial landscape is poised for another dynamic year. Examining the performance of US and Australian equity markets in 2023 reveals interesting insights into the drivers behind their gains and sets the stage for understanding potential trends in the coming months.
US Equities
In 2023, the US equity markets experienced significant gains, with the S&P 500 leading the way with a robust 24.2% increase. The Dow Jones Industrial Average and the Nasdaq also posted respectable gains of over 13% and an impressive 43%, respectively.
The two Key Drivers:
Technology Sector Dominance: The broader market’s gains were driven largely by the so-called Magnificent 7 companies, including Apple, Microsoft, Alphabet, Amazon, Nvidia, and Meta Platforms. They accounted for about two-thirds of the gains in the S&P 500 this year, according to S&P Dow Jones Indices. Nvidia led the group with a gain of about 239%.
Federal Reserve’s Influence: The Federal Reserve’s December forecast, signaling its intention to cut interest rates three times in 2024, provided a positive outlook for investors. Lower interest rates generally stimulate economic activity and make equities more attractive.
Australian Equities:
Australia witnessed a 7.8% annual advance in its share market in 2023, fueled by the belief that central banks were concluding their rate-hiking cycles.
What can we watch based on the above for 2024?
Despite the widely accepted notion of a soft landing, there exists a risk that the anticipated drop in inflation may not happen as fast as expected. Investors are pricing in interest rate rises with the expectation that inflation will retreat, but various factors, such as persistent inflationary pressures and unforeseen external shocks, could challenge this assumption.
In navigating the financial landscape of 2024, investors must stay vigilant to changing dynamics. While the markets benefited from technology-driven gains and a favorable interest rate outlook, markets face internal and external challenges that may impact economic growth and corporate earnings. In 2024, Donald Trump won the first crucial test of the US Presidential Election race, Taiwan re-elected a party advocating for more independence from Beijing, and the US and UK launched strikes against Houthi targets in Yemen. Additionally, Russia has become the largest economy in Europe, and Iran has launched missile strikes in Pakistan, Iraq, and Syria. The first few weeks of the year have already demonstrated the dynamic nature of the global landscape. Investors should, therefore, not assume that all will be rosy and should be open to adjusting tact based on these changes.
