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Monthly Market Update - December 2023

By Sheridan Admans
Reading time: 6 minutes

While December witnessed Value stocks outpacing Growth stocks, the broader landscape of 2023 saw Growth stocks, led by the largest US tech stocks often referred to as the Magnificent Seven, significantly outperforming their Value counterparts. This marked a crucial resurgence for Growth companies that had grappled with substantial losses during the tumultuous events of 2022.

While December witnessed Value stocks outpacing Growth stocks, the broader landscape of 2023 saw Growth stocks, led by the largest US tech stocks often referred to as the Magnificent Seven, significantly outperforming their Value counterparts. This marked a crucial resurgence for Growth companies that had grappled with substantial losses during the tumultuous events of 2022.

The year-end saw an early Santa rally gain unexpected strength as central bankers shifted their stance on inflation, responding to data that revealed a quicker-than-anticipated fall in both US and European inflation. This development sparked optimism, fostering hopes of impending rate cuts.

The market, with heightened anticipation, is meticulously dissecting every data point, eagerly searching for signs of a soft landing and the evasion of a looming recession. Investors are clinging to each piece of information, seeking reassurance the market is on a trajectory towards stability, steering clear of the precipice of economic downturn.


In October, the impact of higher rates on the UK economy was unexpectedly pronounced, with data published in December revealing a more significant contraction than anticipated. The economy, which had shown slight growth in September, experienced a decline driven by contractions in manufacturing, services and construction. While the Bank of England maintained interest rates, it signalled a likelihood of a prolonged restrictive higher rate policy period. November's inflation data, released in late December, surpassed expectations by dropping to a two-year low. Major contributions to this decline came from transport, recreation, food and non-alcoholic beverages. In a surprising turn, the Nationwide Building Society reported a modest 1.8%(1) decrease in house prices over the year, significantly better than the 10% predicted by economists a year earlier.

The European Central Bank, for the second consecutive meeting, maintained interest rates while revising growth forecasts downward. The Eurozone witnessed lower-than-expected inflation, offering a glimmer of hope for potential rate cuts. Factors such as decreased growth in food and services, along with lower fuel prices contributed to this decline.

Early December data highlighted a potential shift in the tight US jobs market, as job openings reached their lowest level in two and a half years. However, subsequent November data contradicted expectations, with the unemployment rate falling. The US Federal Reserve closely monitors labour market indicators to assess the effectiveness of its policy decisions. A decline in US inflation expectations, reflected in consumer sentiment survey data in December, raised concerns over the impact of rate hikes and cooling oil prices. Such shifts in consumer sentiment hold sway in influencing Fed policymakers to consider holding or even trimming rates. At its December meeting, the Fed kept rates unchanged, acknowledging slowed economic growth and inflation over the past year, signalling a potential for three cuts in 2024. November's inflation rose by a 3.2%(2) annual rate, less than anticipated.

Japan experienced a faster-than-anticipated economic growth decline in Q3, reported in December, as consumption slowed, posing challenges to the Bank of Japan's plans to phase out accommodative monetary policy. Falling real wages impacted consumption in the country.

China surprised markets in December by reporting a slight rise in exports, though insufficient to shake off its trading slump. Imports declined during the same period. On a positive note, China's industrial production reached a two-year high, surpassing forecasts and retail sales. Although slightly below expectations, they saw the fastest pace of growth since May.

Argentina took drastic measures in December to combat severe inflation, with the new Economy Minister, Luis Caputo, devaluing the peso by 50%, cutting energy subsidies, cancelling public work tenders, and downsizing the government.


Equities were the standout asset class in 2023, with the MSCI World Index delivering a robust annual return of 16.81%(3). However, the asset class supremacy waned in December, settling for a distant second to REITs with a return of 4.18%(4). Regionally, Latin American markets stole the spotlight, registering the best December performance at 7.54%(5), narrowly edging out India, which saw the MSCI India Index returning 7.35%(6). China, on the other hand, struggled, concluding the year with a narrow positive return of 0.19%(7). This makes it the worst-performing region among those covered, with a yearly return of -13.09%(8).

The UK emerged as the best-performing developed market in December, boasting a return of 4.64%(9), while it closed the year with a moderate gain of 7.65%(10) in 2023. The S&P 500 reached a new high in December, wrapping up 2023 with an impressive nine-week winning streak. The S&P 500 posted a 3.78%(11) gain in December, culminating in an 18.58%(12) gain for the year. Meanwhile, the NASDAQ claimed the spotlight in 2023, securing an annual gain of 46.38%(13), its most stellar performance since 1999, driven by gains in the Magnificent Seven stocks. In December alone, it rose by 4.82%(14).

While Value stocks outpaced Growth stocks in December, the broader narrative of 2023 painted a different picture. Growth stocks, led by the Magnificent Seven, significantly outperformed Value stocks, offering a much-needed boost to Growth companies recovering from significant losses in the 2022 downturn. The MSCI ACWI Value Index returned 5.07%(15) in December and 5.87%(16) in 2023, whereas the MSCI ACWI Growth Index posted returns of 3.52%(17) in December and an impressive 25.71%(18) for the year.

Shifting focus to bonds, they navigated an almost unprecedented third consecutive year of declines. A rally in the final two months of 2023 offered a semblance of recovery. The Bloomberg Global Aggregate Index returned 3.43%(19) in December, though it closed the year down by -0.25%(20). The late-year bond rally hinged on expectations that central banks would initiate rate cuts. The sharp drop in yields inversely correlated with prices alleviated borrowing cost pressures across various borrowers, providing a welcome boost to equity and property assets in the final months.

Real Estate Investment Trusts (REITs) emerged as the standout asset class in December, with the MSCI ACWI REITS Index returning an impressive 7.71%(21). Bolstered by falling bond yields and anticipation of central banks cutting rates in 2024, REITs gained traction. The potential attractiveness of REITs relative to declining bond yields, coupled with notable discounts in many REITs, contributed to their standout performance.

Conversely, commodities faced a challenging year-end, claiming the title of the worst-performing asset class in both December and 2023. The Bloomberg Commodities Index returned -3.38%(22) and -13.09%(23), respectively. US Crude oil slipped below $70(24) per barrel in early December, despite efforts by the Organization of the Petroleum Exporting Countries and allies or OPEC+ to raise prices by signalling a reduction in supply in Q1 2024. Overall, oil prices experienced a 10% decline in 2023, with energy constituting around 30% of the Bloomberg Commodity Index.

LBMA Gold Bullion experienced a modest rise of 0.67%(25) in December and closed the year with a commendable 7.81%(26) gain in 2023. Contributing factors included a lower year-end US Dollar and persistent global economic uncertainties and political tensions.

Considerations for long-term investors

The Magnificent Seven, comprising Amazon, Apple, Google parent Alphabet, Meta, Microsoft, Nvidia and Tesla, undoubtedly stole the limelight in 2023, effortlessly outshining the S&P 500 Index. Among this illustrious group, Nvidia emerged as the poster child, captivating investors with its advancements in artificial intelligence (AI) microchips. Microsoft also carved its niche as a standout leader in the AI market, marking 2023 as a year of unprecedented achievements.

As we venture into 2024, the pervasive buzz surrounding AI's integration into both software and hardware across industries continues to escalate. While Nvidia and Microsoft spearheaded the charge in 2023, the likes of Apple, Meta, Google and Amazon are not to be underestimated, making strategic moves that hint at further intensification ahead.

However, a cautionary note arises from historical echoes, notably the Dotcom boom and bust of 2000. Although drawing a parallel to the crash of early-stage startups may seem extreme for the mature Magnificent Seven, it's essential to acknowledge the potential for volatility and sharp pullbacks fueled by excessive hype.

What adds a layer of complication to this narrative is the diverse applications of these seven giants. Their influence permeates various fund types, from standard global funds to technology-focused funds, sustainability funds, index tracker funds, income funds, US-focused funds, funds based around consumption, and even REITS and infrastructure funds, often claiming a spot in a fund's top ten holdings. Investors may inadvertently find themselves exposed to these stocks to a greater extent than initially assumed, raising concerns about concentration risk.

In light of this, a prudent exercise for investors is to examine the composition of their portfolio. This involves calculating the total exposure to the Magnificent Seven stocks and assessing whether the portfolio's concentration is within a comfortable range. It is important to consider if this level of exposure aligns with the desired level of diversification. By answering these questions, investors can potentially safeguard themselves from unforeseen risks.

1. Nationwide House Price Index. 03/01/2024
2. U.S. Core PCE Price Index YoY. 03/01/2024
3 - 23. FE Analytics, price spread bid to bid in pounds sterling (for the period 30/11/2023 - 31/12/2023), 02/01/2024
24. WTI Crude. 03/01/2024
25 - 26 FE Analytics, price spread bid to bid in pounds sterling (for the period 30/11/2023 - 31/12/2023), 02/01/2024

Date of publication: 5th January 2024

The information in this post is not financial advice, it is provided solely to help you make your own investment decisions. If you are unsure about whether an investment is appropriate for you, please seek professional financial advice. You can find more information here.

When you invest you should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return.

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