The year in review: A strong global equity rebound

Markets started the year (1 April 2023) on a mixed note, initially expecting tough trading conditions to continue based on a backdrop of rising interest rates and weakening economic growth. But as the year progressed, we saw a turnaround, and by the end of the year (31 March 2024) we had seen strong growth across most asset classes.

Optimism rebounds

Market momentum started to shift from late October, as inflation began to show signs of coming under control and enthusiasm about growth opportunities increased. The US economy – the world’s largest and most important market – played its part with many seeing it in “goldilocks” terms (not too hot or too cold), with consumer spending, employment, and company earnings holding up well. Both bond and equity markets rallied in the second half of the year, with global shares marking one of their best periods for several years. However, the question remains, was this all too far too fast? And while time will tell, markets remain on notice. The fight over inflation is not over and artificial intelligence (AI) is still in its infancy.

A small number of stocks dominate

It’s important to note that a massive part of the performance of global equities during the year was due to the domination of the mega-cap technology stocks. Investors were excited about the expectation of AI becoming a factor in nearly everyone’s lives sooner rather than later. A select band of just seven stocks (the magnificent seven) was responsible for two thirds of the Standard and Poor’s 500 performance in 2023, but the positive market performance spread more broadly at the start of 2024, which bodes well looking ahead.

Next stop – rate cuts?

During the year both the US Federal Reserve and New Zealand’s Reserve Bank stopped hiking interest rates. The pivot away from rate hikes helped lift bond returns during the last few months in 2023. However, the rally ran out of steam as lower interest rate expectations were pushed further into the future as central banks have been taking a cautious, wait-and-see approach as they continue their battles with inflation.

Asset class performances

Markets delivered strong results for the year with all asset classes having a positive return. The major contributor was international equities, which rose around the mid twenty percent mark over the year. However, New Zealand equities significantly lagged the offshore performance, affected by a weaker economy and the fact that the local market has fewer technology companies. Cash delivered another strong return benefiting from the rises in short-term rates, controlled by central banks. International and domestic Fixed interest returns bounced back from weakness in recent years.

A diversified approach

Diversification is a key element in reaching investment goals. Holding a mixture of complementary assets, managers, and strategies gives us confidence to navigate an uncertain future and helps smooth out the volatility of returns. Looking forward, it’s hard to see global equities repeating this year’s stellar outcome, but investors need to consider their performance on a long-term diversified basis, accepting that there will be good years and bad years throughout the investment journey.

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.