Equity and bond markets rallied in November as US inflation showed signs of easing which raised investors’ hopes that inflation may have peaked and that the end of the interest rate hiking cycle is potentially nearer. Labour markets remain strong however and with inflation still well above its target in the US and UK, the Federal Reserve Bank (Fed) and the Bank of England (BoE) raised interest rates by a further 0.75% to 4.0% and 3.0% respectively. Anti-lockdown protests in China appear to have influenced a relaxation of zero-COVID policy restrictions, contributing to a turnaround in the performance of Asian equities in November. Along with a weaker US dollar this was largely responsible for the outperformance of emerging market equities against developed markets in November. On a sector level, stocks in the materials and real estate sectors led the market higher in November whilst healthcare and energy stocks, two of the strongest sectors this year, lagged.

US equities and bonds recorded gains in November as signs of inflation cooling was taken positively by markets, with the prices of goods falling as supply chain disruptions continued to ease. Despite concerns over a loss of purchasing power, the US economy continues to be supported by rising levels of consumer spending. Housing markets are usually the first to react to monetary policy tightening and the US housing market certainly reflects this currently with the decline in housing activity and depressed levels of affordability.

The effects of this may filter through the global economy in 2023, and falling house prices could weigh on consumer spending which should tame inflation further. Persistent levels of elevated inflation in a rising interest rate environment has strengthened the US dollar this year however it has given up some of those gains as the potential for less aggressive monetary policy tightening from the Fed caused the US dollar to fall sharply against most major currencies in November, including the euro, sterling and Japanese yen.

Europe continues to feel the effects of the energy crisis and the effect on the end consumer. Although inflation reached a new high as a result of higher food prices and energy costs, there have been early signs that pressures are easing. The risk of gas shortages and rationing this winter has further reduced for Europe in recent weeks due to relatively mild temperatures and reduced demand. Economic activity and consumer confidence in the Eurozone has improved from very low levels and the performance of equities and government bonds was positive in November.

In the UK, inflation increased as rising food prices and utility bills continue to be the driving forces, however, economic activity and consumer confidence has improved slightly although still below previous lows. Consumer spending is likely to come under pressure going forward given the fall in household incomes. Despite the worsening economic outlook, UK equities and gilts also delivered positive returns over the past month with the Chancellors Autumn Statement leaving markets unmoved, in contrast to the ‘mini’ Budget of his predecessor.

Policy makers in China announced various measures to relax COVID restrictions, including a shortening of the quarantine period and the drive to vaccinate more elderly people. This was positive for Chinese equities, resulting in it being one of the strongest performing areas of the market for the month, particularly after the significant losses experienced year to date.

Following a period of steep losses that occurred in most equity and particularly bond markets in the first nine months of this year, the recent recovery indicates that markets have already factored in at least part of the risks and difficulties that are likely to unfold in 2023, including a mild recession for developed markets as a result of the impact of inflation on households, tighter financial conditions and less supportive fiscal policy in the US.

Inflation should start to moderate as the global economy slows, the labour market weakens and supply chain pressures continue to ease. Given the decline already seen in many areas of equity markets and bonds this year, the worst of the market volatility may already be behind us and; provided corporate earnings do not disappoint, selectively equities may offer relatively attractive value at these levels. After the prolonged period of ultra-low interest rates, bonds are now considerably more appealing, particularly for more cautious investors seeking income.


Market Performance


2022 Year to Date
FTSE All-Share +1.78%
FTSE World ex-UK -2.68%
FTSE Actuaries UK Conventional Gilts All Stocks -20.59%
FTSE Actuaries UK Index-Linked All Stocks -30.02%


Total returns in GBP to 30/11/2022



Key Rates
Bank of England Base Rate 3.00%
Inflation (Retail Price Index/Consumer Price Index)* 14.20%/11.10%


* October 2022

Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk

The content contained in this article represents the opinions of MacIntosh & James Partners Ltd. The commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.