A recession has hovered around markets throughout 2023, but investors have not noticed it in any corner of the global economy, and stock indices have benefited greatly from the world’s success in avoiding it.
“If we go back to our forecasts from last year, we thought 2023 would be about a recession in the US,” says Robeco multi-asset strategist Colin Graham. “But we were wrong.”
The growth of the American economy, the largest in the world, during the third quarter reached more than 5% at an annual rate, and the situation was not better than that in Europe. During the first three quarters of 2023, growth in the European Union reached 0.2%, and in the Eurozone it reached 0.1%. . The International Monetary Fund expects the US economy to grow 2.1% this year and 1.5% next year.
The strength of the US economy is mainly due to the strength of consumers who have, until now, ignored rising inflation and interest rates, said Vincent Govins, of the US bank JP Morgan. As a result, after a difficult year in 2022, stock markets rebounded, and the Morgan Stanley Capital International (MSCI) World Index recorded an increase of 21% over the year, compared to losses of approximately 20% last year.
In Europe, the Frankfurt and Paris stock exchanges recorded a new high, while Milan recorded its highest levels since 2008, and Madrid since 2018. In Asia, Tokyo reached its highest levels in 30 years, while in the United States, the three main indices returned to approaching their peak in 2021.
“The Magnificent Seven”
Among stock market indices, the best performing companies in 2023 were those related to artificial intelligence. The value of the American semiconductor company NVIDIA, which focuses on chips used to develop generative artificial intelligence, has grown more than three-fold in the stock market to reach $1.18 trillion, and it is the sixth largest company in the world.
NVIDIA, along with the American technology giants Google, Amazon, Facebook, Apple, and Microsoft, in addition to Tesla, form what is called the “Great Seven” with huge capital, which is largely responsible for the rise in stock markets in 2023.
China markets
Only stock markets in China suffered. The Morgan Stanley China Index lost more than 10% for the third year in a row, and investors abandoned it due to its slower-than-expected recovery, the fragility of the real estate market, and the authorities’ failure to put forward a huge recovery plan.
At the global level, the growth rate was not welcomed by the market because it also implied more difficulties faced by central banks in their battle against inflation.
Through their decisions regarding key interest rates or their interventions in the markets by repurchasing or selling assets, central banks influence the markets and then their decisions and discussions are constantly tracked and monitored, to the point that the US Federal Reserve (the US Central Bank) was forced to intervene in March 2023 to reassure the markets. He prevented the bankruptcy of 3 regional banks in the United States, fearing that this would lead to a state of panic throughout the global financial system.
Although the pace of price increases slowed throughout the year, central bank governors refused to ease their monetary policy, but rather tightened it further last September, which led to a decline in the possibility of the rate cut that investors had hoped for.
Interest rate reduction
The idea of lowering interest rates in the first months of 2024 finally crystallized last November, allowing global stock indices to experience their best month in 3 years, and a sharp decline in borrowing rates in the markets.
Pictet AM Investment Strategy Advisor Christopher Dembeck explains that the market’s expectation that central banks will cut interest rates without going through a recession has had a direct impact on the markets.
This movement also benefited small companies that investors had overlooked until now, leading to a widening of the valuation gap between them and multinational companies during the year.
