January 2024 Investment Summary

As we enter a new year, let’s look back at global stock market movements and some of the actions taken by central banks in December 2023. The festive month witnessed varied trends and occasional volatility in markets, reflecting further resilience and adaptation. Central banks played a crucial role in navigating uncertainties, implementing measures to mitigate risks and attempting to further support growth. This retrospective analysis of market forces and monetary policies defines the closing chapter of 2023 and sets the stage for our January 2024 Investment Summary.

Equities and bonds continued their strong rally through to the end of the year. A dovish pivot by the Federal Reserve Bank (Fed) at their last Federal Open Market Committee (FOMC) meeting of the year fuelled a further decline in market interest rates, propelling stocks to achieving new highs for the year.

During the FOMC meeting Q&A, Chairman Powell presented an even more dovish outlook than what the already optimistic markets had anticipated. The FOMC adjusted their forecast for the Fed Funds rate at the conclusion of 2024, reducing it by 50 basis points. Additionally, they signalled the likelihood of two 25 basis point cuts in the Fed Funds rate in the upcoming year. Furthermore, they maintained their forecast for the unemployment rate to stay low, while slightly reducing their inflation forecasts for 2024 and 2025.

Could this be indicative of a soft landing?

Notably, none of the FOMC members forecast any rate hikes.

Source: Bloomberg (all returns are in local currency and exclude dividends)

Equity investors in particular experienced a highly favourable year in 2023, even as central banks continued to hike interest rates during the first half of the year. Indeed, the rallies witnessed in 2023 have almost completely offset the losses incurred in 2022. Consequently, over the past two years of aggressive central bank inflation fighting, investors have essentially achieved flat returns.

Given the potential conclusion of the inflation fighting phase, should investors expect strong equity performance in 2024?

The challenges faced by asset markets over the past two years has stemmed from the rapid and rather substantial tightening of central bank monetary policies. While a modest reduction in rates is noteworthy, it may not yield the same magnitude of impact on financial markets.

Source: LSEG, ONS, Eurostat via FT (Financial Times)

The market’s mood has shifted dramatically as inflation has improved. Financial markets continue to price a significant easing of monetary policy by the European Central Bank (ECB), the Bank of England (BoE), and the US Federal Reserve, with expectations of this easing starting in the spring of 2024. This anticipation has led to a downward trend in bond yields.

Source: Bloomberg via FT (Financial Times)

We believe that a substantial portion of the positive effects on asset markets resulting from central bank policy easing may already be reflected in current prices. Investing in stocks with the expectation of benefitting from further declines in interest rates might be a mistake, given that interest rates have already fallen considerably from their peak levels in the summer of 2023.

Our approach is to focus on stocks that can manage through persistently tight labour markets, and which can withstand the cumulative impact of interest rate hikes witnessed over the past two years. We are not comfortable having an overweight position in the richly valued technology stocks. There is considerable risk of disappointment concerning anticipated interest rate cuts; for instance, in the US, markets are currently pricing in almost 150 basis points in cuts, three times the Fed’s own projection.

In the fixed-income space, we continue to prefer government bonds and high-quality investment grade credit.

Our view is that central bank rate adjustments will likely be more modest compared to the past two years, exerting a diminished influence on markets. Stock performance will be driven more by earnings and valuation rather than by central bank behaviour. Our current positioning is consistent with this thinking.

Stay tuned for our 2024 outlook note which will be published later this month.

Wishing you all the best for the New Year!

___________________________________________________

Revisit some of our interesting insights from 2023, put together by our team of investment experts;

Stay tuned for more insights from Oakglen on the hot topics and latest trends in the financial markets. You can also sign up to our mailing list for more regular communications using the section below or get in touch with one of the team.

Jeff Brummette

Chief Investment Officer

+44 (0) 20 4583 1129

Disclaimer

This document is distributed by Oakglen Wealth Limited and / or Oakglen Wealth (Jersey) Limited (hereafter “Oakglen”) to you for your information and discussion only. Unless otherwise stated nothing in this document constitutes investment, legal, accounting, real estate, conveyancing, surveying or tax advice, or a representation that any investment is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. It is not a solicitation or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarised and is expressed as of the date of writing. The information may change without notice and Oakglen is under no obligation to ensure that such updates are brought to your attention. The price and value of investments and any income that might accrue could fall or rise or fluctuate. The price of shares and income from them may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment. A change in the economic environment, possible changes in the law and other events may cause future performance to deviate from that expressed or implied in this document. Please note that past performance, simulations and forecasts are not a reliable guide to future returns. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. Investing in Packaged Retail and Insurance-based Investment Products (PRIIPs) carries a high level of risk and may not be suitable for all investors.

Any information provided by a client and used to produce this document will have been checked by Oakglen for plausibility only and the client notified accordingly of any obvious anomalies. This document and any related recommendations or strategies may not be suitable for you; you should ensure that you fully understand the potential risks and rewards and independently determine that it is suitable for you given your objectives, experience, financial resources and any other relevant circumstances. You should consult with such adviser(s) as you consider necessary to assist you in making these determinations. The opportunities and risks associated with each investment product can be found in the relevant underlying securities prospectus and any other supplementary documents. All documents will be made available at any time upon request.

Oakglen does not advise on the tax consequences of investments, and you are advised to contact a tax adviser should you have any questions in this regard. The levels and basis of taxation are dependent on individual circumstances and are subject to change. This document may relate to investments or services of an entity/person outside the United Kingdom, or to other matters which are not regulated by the Financial Conduct Authority, or in respect of which the protections of the Financial Services Compensation Scheme. Further details as to where this may be the case are available on request in respect of this document. Additionally, this document may relate to investments or services of an entity/person outside Jersey, or to other matters which are not regulated by the Jersey Financial Services Commission, or in respect of which the protections of the Jersey Financial Services Commission for retail clients. Further details as to where this may be the case are available on request in respect of this document.

This document has been prepared from sources Oakglen believes to be reliable, but we do not guarantee its accuracy or completeness and do not accept liability for any loss arising from its use. Oakglen reserves the right to remedy any errors that may be present in this document. Oakglen, its affiliates and / or their employees may have a position or holding, or other material interest or effect transactions in any securities mentioned or options thereon, or other investments related thereto and from time to time may add to or dispose of such investments.

This document is intended only for the person to whom it is issued by Oakglen. It may not be reproduced either in whole, or in part, without our written permission. The distribution of this document and the offer and sale of the investment in certain jurisdictions may be forbidden or restricted by law or regulation. This communication does not constitute the solicitation of an offer to purchase or subscribe for any investment or service in any jurisdiction where, or from any person in respect of whom, such a solicitation of an offer is unlawful.

Investments may have no public market or only a restricted secondary market. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid. As such, for investments not listed or traded on any exchange, pricing information may be more difficult to obtain, and the liquidity of the investments may be adversely affected. A holder may be able to realise value prior to an investment’s maturity date only at a price in an available secondary market. The issuer of the investment may have entered into contracts with third parties to create the indicated returns and/or any applicable capital protection (in part or in full). The investment instrument's retention of value is dependent not only on the development of the value of the underlying asset, but also on the creditworthiness of the Issuer and / or Guarantor (as applicable), which may change over the term of the investment instrument. In the event of default by the issuer and/or Guarantor of the investment, and / or any third party the investment any income derived from such contracts is not guaranteed and you may get back none of, or less than, what was originally invested. Parties other than the Issuer or Guarantor (as appropriate) mentioned in this document (for instance the Lead Manager, Co-structurer, Calculation Agent or Paying Agent) do neither guarantee, repayment of the invested capital nor financial return on the investment product, if nothing is indicated to the contrary. Any capital protection given is usually an inherent part of the product; provided through the use of options, futures or other derivative products. You may have to accept smaller returns on an investment relative to a direct investment in the underlying index, basket, etc. because of the costs involved in providing the capital protection. Such capital protection normally only applies if the investment is held until maturity. The amount of initial capital to be repaid may be geared, which means that a fall in the underlying index or securities may result in a larger reduction in the amount repaid to investors. Alternative investments, derivatives or structured products are complex instruments that typically involve a high degree of risk and are intended for sale only to investors who are capable of understanding and assuming the risks involved. Structured products carry counterparty risk, in that in the event of default by the issuer you may lose some or all of your capital invested even when the product carries capital guarantees. Where this document relates to emerging markets, such investments should be made only by sophisticated investors or experienced professionals, who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments and have the financial resources necessary to bear the substantial risk of loss of investment in such investments.

The services described are provided by Oakglen or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Certain products and services may not be available in all locations or to all Oakglen clients.

Data Source: Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited, otherwise specified.

Oakglen is a registered business name of Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited.

Oakglen Wealth (Jersey) Limited is regulated in Jersey by the Jersey Financial Services Commission for the conduct of Investment Business and is a limited company with company number 121454, incorporated in Jersey on 7 June 2016. Its business address is 4th Floor, 1 IFC, St Helier, Jersey, JE2 3BX.

Oakglen Wealth Limited is authorised and regulated by the Financial Conduct Authority. The registered address of Oakglen Wealth Limited is 30 Golden Square, London, United Kingdom, W1F 9LD and is registered in England and Wales with number 13182724.

All articles