Global equity markets rallied sharply during the fourth quarter of 2023. 

Signs of slowing inflation spurred investors’ hopes that the Fed and other global central banks could begin to reduce interest rates sooner than previously expected. Additionally, there is optimism that the U.S. economy could be primed for a “soft landing,” in which growth and inflation slow but the economy does not enter a recession. Developed markets outperformed their emerging-market counterparts for the quarter. 

North America was the strongest performer among the major developed markets during the fourth quarter, led by the U.S. The Far East region was the primary market laggard due mainly to underperformance in Hong Kong and Singapore. Eastern Europe was the top-performing region within emerging markets during the period attributable primarily to strength in Poland. In contrast, the Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—recorded comparatively smaller gains and comprised the weakest-performing emerging-market region during the quarter.¹ 

Global fixed-income assets, as represented by the Bloomberg Global Aggregate Bond Index, gained 8.1% in the fourth quarter. Corporate bonds were the top performers within the U.S. market for the month, while U.S. Treasury securities saw relatively smaller gains and were the most notable market laggards.² Treasury yields moved lower across the curve, particularly for all maturities of one year or longer. Yields on 2-, 3-, 5- and 10-year Treasury notes decreased 0.80%, 0.79%, 0.76% and 0.71%, respectively, over the quarter. The spread between 10- and 2-year notes narrowed from -0.44% to –0.35% during the quarter, and the yield curve remained inverted.¹

As widely expected, the Fed maintained the federal-funds rate in a range of 5.25% to 5.50% following its meeting on 12-13 December. In a statement announcing the continuation of the pause in its rate-hiking cycle, the Federal Open Market Committee (FOMC) commented, “In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” During a news conference following the FOMC’s meeting, Fed Chair Jerome Powell struck a cautious note regarding the central bank’s efforts to tame inflation, commenting, “No one is declaring victory. That would be premature.” Nonetheless, Powell acknowledged that FOMC members are considering when to begin to cut interest rates as inflation slows. “That begins to come into view, and clearly it’s a topic of discussion,” he noted.

On the geopolitical front, long-simmering tensions in the Middle East escalated to war following a surprise attack on Israel by Hamas in early October. In addition to the casualties resulting from Hamas’ initial incursion into Israel, the militant group and some of its allies abducted more than 200 soldiers and civilians. A one-week ceasefire in the military conflict between Israel and Hamas expired on November 30, after the two sides could not reach an agreement on an extension. The truce had led to several hostage and prisoner exchanges between Israel and Hamas. Each side blamed the other for the failure to extend the ceasefire, and fighting resumed following the expiration of the truce. 

For professional clients only. Not suitable for retail distribution. All references to performance are in US dollar terms unless otherwise noted. 

1. All equity market performance statements are based on the MSCI ACWI Index. 

2.  According to the Bloomberg U.S. Corporate Index and the Bloomberg U.S. Treasury Index

3. “Xi warned Biden during summit that Beijing will reunify Taiwan with China.” NBC News. 20 December 2023. 

4. According to market data from The Wall Street Journal.

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