February Market Snapshot


After a challenging 2022, investors who stayed the course were rewarded with strong performance last year. Those taking a more conservative approach received returns in the mid-to-high single digits, while those willing to take a bit more risk received double-digit returns. As Charlie Munger once said, “The big money is not in the buying and selling. But in the waiting.” Being patient and taking a long-term view tends to increase the likelihood of a favourable investment outcome.

So, what made 2023 such a good year for investors? First, those who were invested in fixed interest securities benefitted from the higher income offered by these instruments. And secondly, those who were invested in global shares experienced stellar returns. The US equity market (S&P 500), which makes up the lion’s share of the global equity market, was up 24% last year. The performance of the seven largest stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla), collectively referred to as the ‘Magnificent Seven’, really drove the market higher. Investors’ enthusiasm for Artificial Intelligence saw the share prices of these companies skyrocket. For example, Microsoft was up 57%, while Amazon was up 81%.

Looking ahead to what this year may hold, we think inflation should continue to fall and move closer to where central banks would like to see it, which is ultimately somewhere around 2%. With higher interest rates biting, we expect global economic growth to be below trend in 2024. However, the resilience displayed thus far by the US economy (the world’s largest), means a global recession is unlikely. Later in the year, we will probably see a number of central banks start cutting their target interest rates. In this environment, bonds should perform well. Also worth noting is that with yields now a lot higher compared to a few years ago, bonds have greater scope to help lessen the impact of any equity market volatility.

The scenario of no global recession and central banks easing monetary policy bodes well for equities. However, there are always risks, some known and some unknown, which could throw a spanner in the works. For example, financial markets are currently pricing in quite a few interest rate cuts this year by the US central bank (the Fed). If these don’t eventuate, that would be a tougher environment for equities. Geo-political risk is another one to watch, such as an escalation of hostilities in the Middle East or rising tensions between the US and China over Taiwan.

Another aspect that market participants probably haven’t yet factored into their forecasts is the US presidential election. There’ll be no shortage of drama on that front, with it being almost a done deal that Donald Trump will win the Republican presidential nomination. Should he be re-elected as President, we can expect to see a more inwardly focused US, that is fiscally more conservative (less government spending). It’s also likely that he will unwind some of the Biden government’s climate change initiatives.

So far this year, the flow of strong economic data coming out of the US has continued. This has propelled the US equity market to an all-time high. It has also potentially delayed the start of the Fed’s easing cycle to the second quarter of this year. The Fed will want to be confident that inflation is moving sustainably lower before it pulls the trigger on interest rate cuts.


This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser.
No representation or warranty is made as to the accuracy, reliability or completeness of any statement made in this article.
No party, including BNZ, is liable for direct or indirect loss or damage resulting from the content of this article. Any opinions in this article are not necessarily shared by BNZ or anyone else.