2023 Revisited- A round-up of all the major events that impacted global market

2023 Revisited: A round-up of all the major events that impacted global market

By Yogesh Kansal

There won’t be many investors who would look back at 2023 and grumble about it lacking in fervour or excitement! The year 2023 had quite a few nerve-wracking rides in store, which kept equity market investors as well as corporates, banks and economists on the edge of their seats.

Chair Powell’s steadfast commitment to calming down inflationary waters has buoyed markets and led to an unanticipated bull run at the end of the year. As we make our way into the new year, institutional investors have already baked in higher valuations after the Federal Reserve’s rather benign projection that three rate cuts are in the offing in 2024.

Recession Rewind

Notwithstanding how sanguine and optimistic the projections for 2024 might be, it would be mighty forgetful of us, if we don’t take an opportunity to look back and introspect about the terrain we have covered this year.

Dire predictions were doing the rounds everywhere at the beginning of 2023. Newspapers, social media, YouTube videos and brokerage houses were succumbing to the lure of doomsaying, and unwittingly triggering market jitters. Consequently, the few and far-between positive signals —- which did grace the markets —- were being drowned out by the market’s noise.

To date, the balance sheets of most individuals and companies remain healthy, businesses are now prepped up and truly resilient, while unemployment remains low and inflation is seemingly on the verge of being tamped down.

However, these tailwinds only seem obvious in hindsight.

By the middle of 2023, the US economy was being rattled to its core by the twin forces of an imminent recession and a severe, unsparing banking crisis.

One after the other, almost as if they were dominos, domestic banks like Silvergate Bank, Silicon valley, Signature and First Republic collapsed, and markets were left shivering in their boots, desolately hoping that the contagion from the frenzied run on bank deposits wouldn’t spread further.

The larger banking collapse would have, indeed, come to pass had it not been for the Federal Reserve Bank which stepped in and promptly disbursed emergency loans to troubled banks. Other larger banks like JP Morgan and New York Community Bancorp also played their part by taking over the assets of the collapsed banks.

Returns Ramp-up

As of December 31, S&P500 delivered annual returns of a handsome 24%. This—- hands down —- beats its average annual returns that run in the ballpark range of 10%.However, the rise of the S&P500 can hardly be declared to be a proxy for an ebullient US market.

For those who might not be in the know, only seven companies, affectionately labelled the “Magnificent seven” command 30% of the index composition and 87% of its cumulative returns since October.

The catch here is that these seven companies — Alphabet, Apple, Meta, Facebook, Amazon.com, Microsoft, Nvidia and Tesla —- are running up the index and capturing investor attention, much to the dismay of other smaller yet promising companies.

A deeper look at the S&P500 returns, tells us that the market gains are far from broad-based. For a truly robust bullish sentiment, investor optimism will have to seep into other sectors beyond technology, luxury and communication services stocks.

Which way is the wind blowing?

It is all too easy for the over-cautiousness of 2023 to give way to the over-optimism of 2024.

While the US market experts foresee a strong bull run, Europe and UK markets will strive to make their way out of the swamp of high inflation, enervated demand and the crippling impact of Brexit. On the other side of the globe, China is not faring too well either. Unsustainable debt levels, an ageing demographic and an unenthusiastic real estate market will spell more trouble for its economy.

Add to this tumultuous mix, the many geo-political clashes and conflicts simmering around the world. The Russia-Ukraine war wages on while new tensions in the Red Sea are ominously hinting at a resurgence of crude oil prices. Elevated crude oil prices could set many national economies, including that of India, back to square one. The balance of payment could once again tilt, unfavourably, towards imports and merchandise exports could take another hit.

Looking at the larger picture, 2024 promises to be another rollercoaster ride for the markets. Like a tightrope walker, investors would have no choice but to be vigilant in the new year. The age-old dictum of being fearful when everyone is greedy, and being greedy when everyone is fearful would serve them well.

(Author is Cofounder & CMO, Appreciate)