As I write this on the first day of December 2023, for publication in January 2024, it’s quite hard to know how the last month of the year will play out, given the tumultuous markets we’ve had this year, and what 2024 may hold. After a very strong November (Capped SWIX up 8.3%, ACWI USD 9.2% for the month) we hope that this strength continues into December, to leave investors a little cheerier for the festive season!
Year to date to 30 November 2023, investors in global markets were rewarded with returns of 17.2% in USD as measured by MSCI ACWI (USD), while those in the South African market are up 4.9% YTD as measured by the Capped SWIX TR.
This year, the S&P500 has seen a significant recovery from the 2022 bear market where it lost -18.1% in total returns, the worst since the Great Recession in 2008. This year, the S&P 500 valuations are significantly higher than their long-term average (19.1 vs. 17.8), higher than the latest 2023 high set in July. However, the equally weighted S&P 500, which reduces the effect of the ‘Magnificent 7’ (the seven largest technology companies), trades close to its long-term average at 16x PE. In 2023, most of the S&P 500 returns were driven by the ‘Magnificent 7’, up +99% as at end of November 2023, while the rest of the US market is up +7%. This differentiation could present compelling opportunities for alpha generation through active management in 2024.
A recent survey of institutional fund managers in SA by Bank of America found that most of the local fund managers who participated in the survey believe that SA equities are undervalued and 71% are bullish on SA equities. Could 2024 be the year for SA equities to shine?
In 2023, bonds emerged as a standout asset class, offering strong prospects, resilience, diversification, and attractive valuations compared to equities. Will we see a more typical inverse relationship with bonds and equities in 2024? Risks around the macro and geopolitical outlook remain.
Earlier in April, the Central Bank’s staff forecasted a mild recession starting later this year based on the potential economic effects of the US banking crisis, stemming from the failure of Silicon Valley Bank in early March. From then, the Federal Reserve took measures to improve confidence in the banking system with its Bank’s Funding program and other steps to prevent future failures. Fast forward to July, the forecast was removed, and the last rate hike in 2023 was announced as the US economy continued to show resilience despite monetary tightening to the highest levels in 22 years. The US third-quarter GDP growth surprised to the upside at 4.9%, better than expected. On 1 December, Powell said, “The risks of under- and over-tightening are becoming more balanced”, but the Fed is not considering lowering rates now. Could market volatility ease in 2024 as inflation declines and the US Federal Reserve ends its rate hike cycle? Will the US have a soft, hard or no landing next year? If there is no recession in the US, could there be the potential of a restocking cycle that may benefit Chinese exports, and the knock-on effect of this on other economies?
The 2024 United States presidential election is scheduled for 5 November 2024 in Alaska. While there is no shortage of people running for president, most of them are in the shadow of President Biden and former President Donald Trump – seems like déjà vu! What will this mean for US policy and how will it affect the rest of the world?
And further afield, will Putin run for presidential elections in March next year and seek another six years in power, continuing Russia’s war in Ukraine and struggle with the West?
Closer to home, general elections will be held in South Africa in 2024 to elect a new National Assembly, as well as the provincial legislature in each province. These will be the seventh elections since the end of the apartheid in 1994. Is a national coalition a high possibility, and how would this work?
All we can say from this year is that no one can predict the future, not even the Fed, and portfolio diversification and flexibility remain key into 2024.
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