Markets in Focus: December market snapshot

A 7% drop in the crude oil price at year-end gave investors hope that global inflationary pressures are easing. Expectations that the US Federal Reserve would start to cut interest rates later in 2024 spurred a welcome rally in US financial markets in December which was reflected, less exuberantly, in many other markets. However, the potential for even a mild US recession in 2024 has not been entirely ruled out.

In December, the S&P 500 rallied 4.5%, driving its return for 2023 to above 24%. Although most sectors of the US equity market were stronger, the “Magnificent Seven” IT stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Invidia and Tesla – again delivered impressive performance. Invidia alone appreciated by an astonishing 239% for the year on the Nasdaq. US bond yields eased, with the 10-year US Treasury moving below 4%.

European markets were also stronger in December – as economic growth was more resilient than initially forecast – although there has been a disconnect between economic and financial market performance. Germany’s DAX Index, for example, delivered a strong return for the year (driven largely by another tech stock, SAP), even though the economy moved into recession.

China was the exception in the stronger global equity markets. The Hang Seng Index was down 13.8% for the year due to concerns about prospects for growth, following a real estate crisis and another move by the Chinese authorities in December to curb online gaming. The Chinese property and construction sector was the worst performer, with a 30.9% decline for the year.

The JSE All-Share Index gained 2.2% in December, bringing its return for 2023 to 9.25%. Although this was a relatively subdued performance, the month was marked by a resumption of foreign buying. A stand-out sector was property, which delivered 9.9% in December and 10.15% for 2023 as a whole. Over five years, however, the SAPY has returned only 0.24%. The All-Bond Index returned 1.49% in December and 9.7% for the year.

The rand gained from a weaker dollar in December, limiting its depreciation for 2023 to 7.48%. It also appreciated by 2.3% against the euro in December but was 11.25% weaker against the euro over 12 months.

Due to the influence of US stock markets on the MSCI World index, and the effect of the weakening rand, South African investors in the index would have earned 33.04% in rands in 2023. A cautious investor holding cash throughout 2023 would have gained only 8.06%.

Table 1: Total returns to 31 December 2023