But will this continue in 2024?
2023 marked a year of recovery and strong performance for investors who endured the volatility of 2022 with patience, according to BNZ.
In BNZ’s February Market Snapshot, Louis Nel (pictured above), the bank’s head of investment solutions, noted that embodying Charlie Munger’s wisdom that true profit comes from waiting, investors reaped the benefits of a long-term approach, with conservative strategies yielding mid-to-high single-digit returns, while those embracing risk enjoyed double-digit gains.
Key investment drivers of success in 2023
The year’s success can be attributed to two main factors: the appeal of fixed interest securities, which provided higher income, and the exceptional performance of global shares, particularly in the US equity market.
The S&P 500 surged by 24%, thanks in part to the “Magnificent Seven” – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – whose shares soared.
“Investors’ enthusiasm for artificial intelligence saw the share prices of these companies skyrocket,” Nel said. “For example, Microsoft was up 57%, while Amazon was up 81%.”
Outlook for 2024: Inflation, growth, and market predictions
Looking ahead, BNZ is expecting inflation to align closer with central bank targets of around 2%, despite the dampening effect of higher interest rates on global economic growth.
The resilience of the US economy suggests a global recession is unlikely, with potential for central bank interest rate cuts later in the year.
“In this environment, bonds should perform well,” Nel said. “Also worth noting is that with yields now a lot higher compared to a few years ago, bonds have greater scope to help lessen the impact of any equity market volatility.
“The scenario of no global recession and central banks easing monetary policy bodes well for equities.”
Navigating risks and uncertainties
However, the investment landscape is not without its risks, including the potential for fewer than expected US central bank rate cuts, geopolitical tensions – that and the impact of the upcoming US presidential election.
“There’ll be no shortage of drama on that front, with it being almost a done deal that Donald Trump will win the Republican presidential nomination,” Nel said. “Should he be re-elected as president, we can expect to see a more inwardly focused US, that is fiscally more conservative (less government spending). It’s also likely that he will unwind some of the Biden government’s climate change initiatives.”
The strong economic data emanating from the US has pushed its equity market to new heights, potentially delaying the Federal Reserve’s easing cycle.
“The Fed will want to be confident that inflation is moving sustainably lower before it pulls the trigger on interest rate cuts,” the BNZ investment leader said.
To read Nel’s analysis, visit the BNZ website.
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