4th Quarter Market Update

I hope that this quarterly update finds you well and the New Year is treating you kindly. 

Looking back at the final quarter of 2023, all the action for the whole year was focused on just this period.

However, there were a few other notable items to mention. Firstly, and most sadly the financial industry lost a great mind in November when Charlie Munger passed away. 

Charlie was the right-hand man of Warren Buffet who most people see as the world’s greatest investor. 

Charlie was known for his quick wit and quotes, and this sums up the whole quarter quite nicely. 

“There are huge mathematical advantages to doing nothing”. 

With rates being held during this quarter both here and the US most if not all the returns were seen by taking no action and the graph below illustrates this.  

As you can see both world equity markets and more notability UK Gilts had a strong return from early November onwards. 

The catalyst of this was mainly the softening of world central banks to accept that rates will need to be reduced sooner than later, given flat or falling inflation figures. 

So, an investor that took no action, made no changes, didn’t try to time the market ended the year in positive territory. 

As I have mentioned many times before the hardest course of action is no action and this firmly proves that point. 

WeWork filed for bankruptcy in November, and this didn’t come at too much of a shock. They are a shared office space provider, and they haven’t recovered from the change of habits that covid has created. 

We are not seeing a full return to office or commercial working and even now there is pressure on logistic hubs and warehousing. These where the darlings of the covid lockdowns as we moved our spending habits online. 

With no slowing of consumption and some pressure on shipping given the troubles in the Red Sea this could create a short-term spike for inflation so I do expect this to move in both directions. 

There are now some very large warehousing complexes lying close to empty as we have used up stock and production is still lagging. 

The 64-million-dollar question right now is still, when are rates going to be cut. 

What we can see for sure is that both saving, and debt rates have moved lower in the final quarter and that trend is expected to continue. This means the headline grabbing savings rates will start to reduce or disappear. 

The average savings rate is still 1.99% so even with these higher base rates we are not seeing this fully filter down to the whole savings market. 

As inflation is falling then central banks must keep their promise of rate cuts and the equity markets are pricing these in now. 

Some are forecasting 3.75% rates (UK) at the end of 2024, and markets are focusing on the first cut.  

Bonds have remained under pressure until we had this softening stance and now there appears to be opportunity in Corporate and Government debts. The corporate sector is now having to reissue debt at much higher rates knowing that in the middle term it will be cheaper to wait. 

This might see some having to find alternative ways of bridging gaps to try and hold off for these potentially lower rates. The thinking is dividend suspension or cuts to create a cash stockpile. 

With us now a month into the new year we have seen some interesting predictions as always with what sector or stock will be the highest returning for the year. 

Looking past all the noise, the focus will remain on interest rates, inflation and more than 40% of the world’s population voting this year. This will drive some form of change that is for sure, but to what direction that is unclear for now. 

Here’s to some better weather and longer days. 

As always, feel free to get in touch if you have any questions or require any additional assistance.