Quick Bites | Keeping an eye on the big picture

As we approach the end of the year, it is noteworthy that the usual seasonal trends for markets have kicked in as expected. Since late October lows, most share markets in developed countries are up around 8%, and government bond yields in the US and Australia have declined from around 5% to closer to 4.5%. The market narrative is all about interest rates peaking following the sharp fall in inflation, and yet the risk of recession appears to have diminished. This is good news for markets.

Source: Bloomberg


Just a year ago, inflation rates across the developed world were sky-high – over 9% in the US, 10% in the euro area and 11% in the UK. Now, they’re all down to around 3-4% and surprising on the downside more often than not. While Australia’s inflation rate hasn’t come down quite as fast, it will in time.

Although the cost of living is still way up from where it was before the pandemic, and while the progress has come at the expense of high rates and there are pockets of persistent issues (like rents in capital cities), it’s worth marking the remarkable achievement in getting back to a more recognisable “normal”.

Investors have welcomed data suggesting central banks have done their job without sending their economies into damaging recessions. Many will want further confirmation before joining the party, but by that time the major gains in markets could well be behind us. As we’ve noted in previous Quick Bites, history suggests that once interest rates plateau, the gains in the first half of the plateau tend to dwarf the gains of the second half. On the other hand, by remaining invested for the long term, one doesn’t need to be a market timing guru. We have a positive outlook for markets in 2024.


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