November saw a significant improvement in market sentiment as the narrative shifted towards the prospects of a ‘soft landing’, a more benign scenario of falling inflation without too much collateral economic damage from loftier interest rates.
This was prompted by inflation data on both sides of the Atlantic coming in weaker than expected, which reinforced the message that global interest rates have likely peaked. Meanwhile, the oil price continued to fall, which could help curb the rising costs for businesses and consumers.
Magnificent seven rides again
The US equity market made solid gains over the month, with the Nasdaq 100 US technology index hitting a 22-month high. The remarkable performance this year of the ‘Magnificent Seven’ stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) stalled only slightly when Nvidia, which has rallied sharply this year because it is a perceived beneficiary of artificial intelligence (AI), slightly disappointed the market. The company beat earnings and revenue estimates, but issued cautious guidance owing to export restrictions to China.
Broad UK equities failed to join in the upward momentum to such a degree, hindered by both the underperformance of energy and materials stocks and a strengthening in the pound that serves to water down the value of the overseas earnings of the index heavyweights. However, more interest rate sensitive areas, such as smaller companies and real estate, performed strongly. As did some infrastructure investment trusts where discounts are at last starting to narrow, a subject we highlighted in a previous article.
Meanwhile, China was a clear laggard as the country grapples with an ongoing property crisis. Chinese regulators formulated a funding plan for property developers in its latest efforts to shore up a sector that is suffering a slump in investment, sales and new home prices – a key bellwether for the economy. Aside from this area, only very specific sectors suffered negative returns over the course of the month, notably energy where subsiding oil prices weighed.
Autumn Statement fails to move markets
The Chancellor’s Autumn Statement failed to make any significant impact on markets, with accompanying lower growth forecasts from the Office of Budget Responsibility (OBR) underlining the need for measures designed to increase investment and productivity. Some of these were significant, including the widely trailed continuation of the allowance for companies to offset profits against new investment on IT or other plant and machinery in the year it is made. But for individual investors, there was less in the statement than speculation had suggested.
Instead, it was concerns over additional supply of gilts from more government borrowing, as well as more hawkish comments from members of the Bank of England’s (BoE) Monetary Policy Committee, which capped a decent month for gilts into the month end. BoE’s Governor, Andrew Bailey, outlined his concern about the potential persistence of inflation, indicating the market is putting “too much weight” on the current data releases, including the fall in inflation in October.
Bonds snap back
Bonds of all shapes and sizes, including gilts, performed well over the month as inflation worries subsided overall. We are by no means out of the woods, and central banks continue to highlight the need to keep interest rates in restrictive territory, but the market is now reflecting increasing confidence that inflation will settle towards targets and that rates have peaked.
This potentially creates a more stable environment for investors and one where a portfolio comprising both bonds and equities has genuine diversification benefits. A more positive economic scenario favours equities and a negative one, where interest rates need to be cut more aggressively, should be of benefit to bonds. As we look towards 2024, we can draw inspiration from Charlie Munger, Warren Buffett's business partner and vice-chair of Berkshire Hathaway who recently passed away at age 99, that “The ‘big money’ is not in the buying and selling, but in the waiting”.
Although investors should be aware past performance is not a reliable indicator of future results, here are the top and bottom ten Investment Association (IA) funds and sectors* for November 2023:
Top ten performing funds
Bottom ten performing funds
Top ten performing sectors
Bottom ten performing sectors
The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for November 2023: 31/10/2023 to 30/11/2023. Onshore and retail open-ended funds only.
*There are several thousand funds on sale in the UK. The Investment Association divides these into about 45 sectors, broad groupings that help investors and advisers compare funds of similar types before looking in detail at individual funds.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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