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Most asset classes rallied in November due to expectations that interest rates may have peaked and will be cut next year.   The recovery was fuelled by a couple of factors including signs that inflation may be starting to subside globally, and that the US was showing signs of economic moderation which could result in a ‘soft landing.’  

On the inflation front, both US Consumer Price Inflation and core inflation dropped to 3.2% and 4% respectively.  This news coupled with weaker job and manufacturing number raised hopes that inflation levels could reach the 2% target rate by the end of 2024.  In the UK, headline inflation fell from 6.7% to 4.6% largely due to falls in energy prices while Eurozone, inflation fell from 2.9% in October to 2.4%.  While UK inflation remains elevated versus G7 peers it is encouraging to see the direction of travel moving lower.   

Equity markets rallied sharply in November lifting most markets into positive territory over the period under review.   The US was the best performing region seeing continued strength from the technology sector leading to further outperformance of growth relative to value.  Europe was also a notable outperformer over the period with the financial sector in particularly benefitting from stronger interest margins and profits.  UK markets also posted gains although it is notable that small and mid-sized companies significantly outperformed large caps based on lower bond yields and expectations interest rates may have peaked.  To put this in context, the FTSE 250 rose +6.7% over the month while the FTSE 100 climbed by only 1.8%.   Emerging markets also posted a modest gain over the period although lagged developed markets.

Like equities, bond markets also experienced broad based gain on the expectation of rates cuts in 2024.   Government bonds saw yields fall sharply over the month with 10-year US Treasuries, UK Gilts and German Bunds all falling more than 50 basis points during the month (meaning bond prices rose).    This dynamic played out across the credit spectrum with investment grade, high yield and Emerging Market debt all generating gains over the period.   

Alternatives proved to be more of a mixed bag over the period.   Real estate and private equity were some of the best performing asset classes owing to a more favourable interest rate outlook.  Energy commodities which rallied until late September have fallen in recent months on concerns that economic momentum is continuing to slow.  Precious metals also fell modestly although this was attributed more to Sterling strength which gained 4.3% versus the dollar.

November certainly provided a bit more relief to investors and we hope this momentum carries forward until the end of 2023 into the New Year. We still believe that the market backdrop remains challenging particularly when you add the uncertainty surround geopolitical events unfolding across the globe.  That said, we are encouraged to see that inflation trends appear to be pointing lower.   We still believe caution is warranted in this environment but are looking to take advantage of investment opportunities as they arise.