Developed market equities and bonds ended 2023 with a robust December performance as the shift to a more accommodative monetary policy stance led market participants to believe that interest rates would be cut sooner and more often in 2024 than previously expected. Inflation across developed markets continued a downward trend with lower energy prices being the biggest contributor to the decline. Emerging market equities were weighed down by China’s lacklustre performance while commodities produced negative returns in 2023 after the asset class rallied in 2022.

The US was the best performing major equity market in 2023, delivering its strongest quarterly performance in three years. Returns were dominated by the ‘magnificent seven’ technology and artificial intelligence stocks (Apple, Microsoft, Alphabet, Amazon, Tesla, Meta and Nvidia), however the rally broadened out across various sectors towards the end of the year. Top performing sectors were those most sensitive to interest rates, including information technology, property and consumer discretionary. The US Federal Reserve Bank kept the fed funds rate steady at 5.25%-5.5% for a third consecutive meeting in December 2023, in line with expectations, but estimated 0.75% of cuts in 2024. The US job market remains robust with low unemployment numbers. US consumer sentiment remains high amid substantial improvements in the inflation outlook.

UK equities delivered positive returns during the final quarter of 2023 however slightly behind the US given the composition of the market where there is a greater exposure to underperforming energy stocks. UK small and mid-cap stocks outperformed the broader market as domestically focused stocks performed very strongly given the optimism around the interest rate outlook. Some of the large internationally exposed and economically sensitive areas of the market also performed well, especially in the industrial and financial sectors. More generally, however, larger companies were held back as sterling performed strongly against a weak US dollar.  The Bank of England followed the US and held its benchmark interest rate at a 15-year high of 5.25% for the third consecutive time during its December meeting. GDP growth in the UK expanded 0.3% year-on-year to the end of November, the slowest growth in five months.

The final quarter of the year was a strong one for eurozone shares, boosted by expectations that there may be no further interest rate rises as the European Central Bank maintained interest rates at a multi-year high for the second consecutive meeting. Most sectors rose in December 2023 amid optimism over future interest rate cuts, the top performing equity sectors were property and information technology, while healthcare and energy were the two main laggards, recording negative returns. The energy sector fell amid weaker oil prices and stock-specific factors impacted on the healthcare sector. Higher interest rates have weighed on the eurozone economy where GDP fell by 0.1% quarter-on-quarter in Q3.

The Japanese equity market lagged other markets in December as investors became concerned about yen appreciation and value stocks underperformed growth stocks over the quarter. Overall macroeconomic conditions in Japan continued to improve. The Bank of Japan has made gradual steps to normalise its extraordinary monetary easing policy and continued to hint that they are likely to take further actions in early 2024.

Emerging market equity indices delivered positive returns in the final quarter, albeit behind developed markets, with strong gains from Taiwan, South Korea, and India offset by negative returns from Chinese equities as a result of ongoing concerns around China’s weak economy and issues in the property sector.

Fixed income markets were positive across the board in Q4 2023, supported by expectations of early central bank interest rate cuts and a weakening US dollar. Emerging market debt, global investment grade and inflation linked bonds were the top performing sectors over the quarter. The top two performing government bond markets were the UK (Gilts) and Italy. Corporate bonds were supported by tighter credit spreads and boosted by a weaker US dollar.

Positive returns from equities and bonds in 2023 came with frequent changes in market sentiment, shifting from recession worries at the start of the year, to resilient growth over the summer, to ‘higher for longer’ in the autumn, and ending the year focused on future interest rate cuts. Falling inflation and a dovish stance from central banks has eased some of the concerns with a soft landing now expected and a more positive outlook for markets. To support this view further evidence of inflation declining without global growth stalling, geo-political events and elections in several countries including the US and UK will also impact sentiment.


Market Performance Calendar Year 2023
FTSE All-Share +7.92%
FTSE World ex-UK +17.55%
FTSE Actuaries UK Conventional Gilts All Stocks +3.69%
FTSE Actuaries UK Index-Linked All Stocks +0.93%


    Total returns in GBP to 31/12/2023


Key Rates  
Bank of England Base Rate 5.25%
Inflation (Retail Price Index/Consumer Price Index)* 5.30%/3.90%


   *November 2023

Source of data: FE Analytics,,

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.