Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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November market performance: Equities take flight in hope of soft landing
Market Rewind
Søren Otto Simonsen
Senior Investment Editor
Summary: November performance was positive almost across the board. Armed with a belief that rates are about to fall, lower inflation and strong earnings, markets saw the glass as half full in the second to last month of 2023. Still, risks are on the horizon and especially the continued success of US tech stocks has analysts scratching their heads as they now make up a historic proportion of the leading indices.
November turned out to be a good month for equities. The global index we track increased over 9 pct. The positive performance came on the back of the expectation that we are closing in on so-called peak rates, i.e. that central banks are about to stop hiking interest rates, and maybe even start lowering them, due to easing inflation. This seems to drive a belief that we are in for a soft landing, which is a smart word for saying that markets hope to avoid a deep recession. An increasingly high concentration of large stocks in the US leading indices have also added to the results but is generally a risk going forward.
US 8.9%
The US leads the pack, posting returns of almost 9 percent. As mentioned above, a soft landing, coupled with the expectation of a more business-friendly interest rate environment, is one component of this performance. Another is good earnings from some of the region’s largest (tech) stocks like NVIDIA . While this is generally positive, it comes with the added risk that such companies have increased so much in value that they make up a larger part of the leading US indices than we’ve experienced before. This leads to the risk that index performance grows ever more reliant on single stocks’ performance, which is somewhat contradictory to the nature and purpose of such indices.
Europe 6.3%
Europe posted returns well above 6 percent. The story is quite similar to the one in US – an expectation of fewer rate hikes and more rate cuts on the back of falling inflation has sent good vibes in to the markets and sent equities up.
Asia 7.7%, Emerging Markets 7.9%
Asia and Emerging Markets performance has been driven mainly by India, while Chinese equities also posted positive returns, although at a slightly lower level.
On the sector side, Information technology was the big winner, returning 13.6% for November, mainly based on the strong earnings within the sector. Consumer discretionary and Financials also did well as a result of the improving financial conditions and (expectations of) lower interest rates.
Also bond markets posted positive numbers. In fact, they posted something that could be viewed as close to record returns. Global sovereign bonds rose in the month of November, the most since May 1995, when then Chairman of the US Federal Reserve Alan Greenspan prepared to deliver a first "insurance cut" to combat an economic downturn. Such action, set up the grounds for a bull market.
In a sympathy move with sovereign bonds, global corporate investment grade bond rose 4.67%, the most since April 2020, and the second highest on record (since 2000).
The reasons are expectations of a soft landing, driven by speculations that the Federal Reserve will begin cut rates in 2024, before hitting their inflation target. (Bond section is written with input by Althea Spinozzi)
Check out the rest of this month’s performance figures here:
Sources: Bloomberg and Saxo
Global equities are measured using the MSCI World Index. Equity regions are measured using the S&P 500 (US) and the MSCI indices Europe, AC Asia Pacific, and EM respectively. Equity sectors are measured using the MSCI World/Sector] indices, e.g., MSCI World/Energy. Bonds are measured using the USD hedged Bloomberg Aggregate Total Return indices for total, sovereign, and corporate respectively. Global Commodities are measured using the Bloomberg Commodity Index. Oil is measured using the next consecutive month’s WTI Crude oil futures contract (Generic 1st CL Future). Gold is measured using the gold spot dollar price per ounce. The US Dollar currency spot is measured using the Dollar Index Spot, measuring it against a weighted basket of the following currencies: EUR, JPY, GBP, CAD, SEK, and CHF. Unless otherwise specified, figures are in local currencies.
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