The Week Ahead
22 January

The Week Ahead – 22 January

Investment Market Update: 22 January

Welcome back to 2024. December (2023) closed the year off in style, with exceptional investment performance across all major asset classes, led by AREITs (+11.5%), GREITS (+8.2%) and local Aust equities, with the ASX 200 Index up +7.3%.  In global equity markets, the small/mid cap sector (+8.1%) was the best performing sector.  Bond markets also enjoyed a stellar end to the calendar year with both the Aust bond (+2.7%) and global bond (+3.0%) indices higher as bond yields fell sharply. 

The significant decline in bond yields was driven by the market view that the major central banks are now done with tightening, and the US Fed would begin to cut cash rates in the 1Q24.  In our view the Fed along with the ECB will be more focused on reducing cash rates through the 2H24, ensuring that inflationary pressures are well contained before any major changes to the current policy framework. 

Our initial view through January is that the likelihood of early rate cuts is too optimistic and the path to a benign inflationary outlook will not be smooth. However, the extent of the rally in bond markets saw yields at the long end of the curve across major markets move back below 4.0%.  

While the performance of the local equity market through January has pulled back, the US S&P 500 Index reached a new all-time high at the end of the week. Whether this momentum can continue remains to be seen, but as we head into 2024, many of the themes that were significant drivers of markets in 2023 still remain. 

In our view we see the direction of interest rates, the resilience (or not) of US economy, the outlook for China, geopolitics & war and the US Presidential election as some of the key drivers for markets in 2024.  While in Aust, the outlook for inflation and resilience of the economy led by the strength in the labour market will be critical as it relates to the outlook for cash rates, with the potential that we see one further rate rise in Aust at the Feb RBA Board meeting should the Dec CPI (q/q) print remain well above the RBA’s stated target level. In addition, if the challenge around the ‘cost of living pressures’ continues, the burden on the Albanese Government will only increase. 

So, despite being only 3 weeks old, 2024 is already shaping up as being another dynamic and eventful year.

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