Equity and bond markets performed well in November as better-than-expected reductions in inflation in the UK, US and Eurozone gave rise to hopes that interest rates may have reached their peaks. Lower bond yields and healthy corporate earnings boosted growth stocks including the technology sector given their sensitivity to the outlook for interest rates, small cap stocks also rallied. Commodities fell amid weakness in energy prices despite the ongoing conflicts in the Middle East and Ukraine.

Global government bonds recovered some of their previous losses as yields moved lower, with markets now expecting interest rate cuts in 2024. By the end of November, the 10-year US Treasury yield fell to below 4.4%, despite Moody’s downgrading the US sovereign debt outlook to negative, and the yield on the UK 10-year government bond (gilt) also declined to 4.2%. Investment grade and high yield corporate bonds recorded gains while emerging market bonds were supported by more accommodative local central bank policy and a weaker US dollar.

US inflation (CPI) declined to 3.2% year-on-year in October which provided support to equities, notably the interest rate-sensitive areas of the market such as property and technology stocks. The consumer discretionary sector was another strong performer as cyclical stocks moved into favour while energy underperformed. Although US inflation appears to be on course to fall back to the Federal Reserve Bank’s 2% target without further interest rate hikes required, the Fed still has concerns over the level of inflation and will not be cutting interest rate at this stage. US economic data painted a mixed picture. The US economy has shown signs of cooling with retail spending falling modestly in October along with weakness in the manufacturing sector, however the labour market remains strong.

The UK saw a steeper-than-expected drop in inflation from 6.7% year-on-year in September to 4.6% year-on-year in October. This also led to hopes that the Bank of England may have finished its series of interest rate hikes. Despite still elevated wage growth, economic activity may have bottomed with the UK economy recording no GDP growth in Q3 and a fall in services inflation may result in the Bank of England keeping interest rates at these levels. UK equities rose in November but lagged several developed markets largely due to the composition of the UK equity market and the strength of the sterling detracting from returns of companies with international exposure. Companies in the energy and defensive sectors such as healthcare and consumer staples were weaker during the month, these comprise a large element of the UK market.  After a difficult period for small and mid-cap UK stocks, they outperformed large cap stocks in November. Supportive recent policy measures include the extension of the 100% capital expenditure allowance which allows companies to deduct expenditure on plants and machinery from taxable income.

The Eurozone also saw a drop in inflation. The European Central Bank is cautious on their outlook with the view that inflation would come back to the 2% target if rates remained at current levels for a sufficient period. Signs of weakness in the eurozone economy include declining levels of business activity particularly industrial production and manufacturing activity in Germany and France, however Q3 employment growth was robust. Among developed equity markets, Japan remains the top performer this year, recording further gains in November despite disappointing Q3 GDP growth. Large-cap growth stocks (technology) drove the market higher backed by foreign investors buying Japanese shares, while domestically-oriented smaller companies and value stocks including financials came under pressure.

Emerging market equities rose in November albeit slightly behind developed markets. Chinese equities were in positive territory however they were behind peers due to ongoing concerns over weak economic growth and the property sector crisis. The meeting between the Presidents of China and the US resulted in various agreements on energy transition and climate change which lowers tensions with potentially positive implications for global markets. South Korea and Taiwan were the strongest performing Asian equity markets, while Hong Kong, Thailand and Singapore were subdued in November. Korea and Taiwan benefited from the technology stock rally and India achieved robust gains even as GDP growth proved strong, and inflation showed some signs of moderating. The energy-related markets, such as UAE and Saudi Arabia underperformed given lower energy prices.

November provided some relief as bonds and equities saw gains. Data suggesting inflation is easing provided optimism that most developed market central banks have finished their monetary tightening cycles.  A likely end to interest rate hikes against a backdrop of what appears to be a soft landing for the US economy means that bonds can offer diversification against a disinflationary recession.


Market Performance 2023 Year to Date
FTSE All-Share +3.25%
FTSE World ex-UK +12.77%
FTSE Actuaries UK Conventional Gilts All Stocks -1.64%
FTSE Actuaries UK Index-Linked All Stocks -5.17%


Total returns in GBP to 30/11/2023


Key Rates  
Bank of England Base Rate 5.25%
Inflation (Retail Price Index/Consumer Price Index)* 6.10%/4.60%


*October 2023

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.