2023 A Financial Review

AI Wealth invited its key partners to craft a detailed 2023 review of the financial markets. Please find their findings outlined below.

Evelyn Partners

As we move towards the end of 2023, it felt like many of the concerns for financial markets were little changed. The direction of inflation and interest rates continue to drive market movements. While there is more clarity, and less concern, over interest rates than earlier in the year, inflation is not yet firmly under control. Global growth is likely to remain a little below trend. While US growth has remained robust, higher interest rates have taken their toll in the eurozone and UK, and China has disappointed the markets. The consensus remains for a soft landing for the global economy. Where countries fall into recession, it is likely to be short-lived and shallow.

Stock markets have been volatile, lacking any sustained good news that might steady the ship. Though there may be better times ahead for stocks. There is greater stability around interest rates, inflation is trending lower and the main adjustments to this new environment have been made. Most major economies are at or near the peak in interest rates and hoped-for cuts in 2024 are still possible. There is scope for stock markets to make progress, but they require careful consideration and investors should be prepared for volatility.

Evelyn Partners

LGT Group

In 2023, the stock market witnessed a notable recovery, with the US stock market (the S&P 500) up by approximately 21% year to date (source: Factset as at 13/12/23). Despite facing challenges such as inflation, rising interest rates, a regional banking crisis and geopolitical tensions, the US economy demonstrated resilience and outperformed expectations. The technology and communications sectors, especially the ‘Magnificent 7’ mega-cap tech stocks (Apple, Amazon, Tesla, Nvidia, Microsoft, Meta and Alphabet) played a pivotal role in driving market gains. Notably, many of the sectors that struggled in 2022 spearheaded the market's positive trajectory in 2023.

Inflation and interest rates played a crucial role in market movements throughout the year. The Federal Reserve's aggressive rate hikes in 2022 aimed at curbing inflation showed signs of success in 2023, with year-over-year Consumer Price Index (CPI) inflation declining into the end of the year. As the year progressed, the bond market anticipated a shift from rate hikes to cuts in 2024.

Geopolitical tensions were high throughout the year, climaxing in October with tragic events in the Middle East. Wars in the Middle East and Ukraine, the series of rapid interest rate hikes, tight monetary conditions and a fragile macro environment all pose risks to financial markets.

LGT Group

Rathbones Investment Management

2023 has been an interesting year. Rampant inflation in western markets led to western central banks increasing interest rates at the fastest pace in recent memory. Broader global equity markets have thus been in a stage of paralysis struggling to make heads or tails of it.

Up until two weeks ago, only seven stocks accounted for the entire growth of US stock market returns over the period. These stocks, dubbed ‘the magnificent’, comprised of Apple, Alphabet (Google), Amazon, Meta (Facebook), Microsoft, Nvidia and Tesla, all performed strongly on the sudden excitement of artificial intelligence following the launch of Open AI’s ‘Chat GPT’ free large language chatbot in November last year. Enthusiasm therefore for anything related to AI has gone gangbusters this year with the rest of the market somewhat lagging.

The rise of interest rates has also made bonds look attractive for the first time in over a decade. Being able to lock into government bonds at over 5%+ and high quality corporate debt at over 6% has certainly been a first in my career!

India had a blockbuster year with the Bombay Stock Exchange Sensex up +16% year to date. India represents one of the most attractive growth stories in the coming years with the economy forecast to be the 3rd largest globally by 2027 and to grow by 7%+ per annum into the near future. This is supported by favourable demographics (with 1 in 5 under 25 years old in the world based in the country), rising living standards and government reform.

Rathbones Investment Management

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