The global stock market in 2023 has largely been successful, driven by decreasing inflation and optimistic interest rate paths. However, challenges like economic slowdowns, especially in China and Europe, and the prospect of lower future returns due to earlier-than-expected gains, may pose hurdles moving forward.
Quick Read
- has shown remarkable performance, nearing its record high and on track for a return of more than 20% for the third time in five years. The Dow Jones Industrial Average also reached a record high.
- Japan’s Market Growth: Japan’s stock market, historically underperforming, has touched its highest level since the post-1989 bubble burst.
- Global Market Success: Stocks in both developed and emerging markets have advanced in 2023, buoyed by the regression of inflation. The IMF predicts global inflation to decrease from 8.7% in 2022 to 6.9% this year.
- Inflation and Interest Rates: The anticipated further cooling of inflation next year is improving investor sentiment about interest rates, which have risen globally to combat inflation.
- Economic Growth Slowdown: Despite stock market gains, global economic growth has slowed, estimated at 3% this year compared to 3.5% last year, as per the IMF.
- China’s Struggles: China, the world’s second-largest economy, has seen its recovery falter, with its stock market, especially in Hong Kong, suffering significant losses.
- Future Returns Concern: The recent surge in global markets might have advanced some potential future gains, potentially limiting future returns.
- Europe’s Economic Challenges: Europe’s economy, on the brink of recession, may face continued pressure in 2024 due to the cumulative effect of interest rate hikes.
- Interest Rates and Market Volatility: While central banks may cut rates later in 2024, rates are unlikely to return to post-2008 financial crisis lows. This new norm for interest rates might lead to more market volatility and constrain stock returns.
- Vanguard’s Forecast: Vanguard projects that U.S. stocks could yield annualized returns of 4.2% to 6.2% over the next decade, lower than recent trends. However, it predicts stronger potential returns for stocks in emerging and developed markets outside the U.S.
The Associated Press has the story:
From New York to Tokyo, Stock Markets around the world have rallied in 2023
Newslooks- NEW YORK (AP)
It’s been a great year for stock markets around the world. Wall Street’s rally has been front and center, with the U.S. stock market the world’s largest and its clear leader in performance in recent years. The S&P 500 is on track to return more than 20% for the third time in the last five years, and its gangbusters performance has brought it back within 2% of its record set at the start of 2022. The Dow Jones Industrial Average closed at a record high Wednesday.
Even in Japan, which has been home to some of the world’s most disappointing stocks for decades, the market marched upward to touch its highest level since shortly after its bubble burst in 1989.
Across developed and emerging economies, stocks have powered ahead in 2023 as inflation has regressed, even with wars raging in hotspots around the world. Globally, inflation is likely to ease to 6.9% this year from 8.7% in 2022, according to the International Monetary Fund.
The expectation is for inflation to cool even further next year. That has investors feeling better about the path of interest rates, which have shot higher around much of the world to get inflation under control. Such hopes have been more than enough to offset a slowdown in global economic growth, down to an estimated 3% this year from 3.5% last year, according to the IMF.
This year’s glaring exception for global stock markets has been China. The recovery for the world’s second-largest economy has faltered, and worries are rising about cracks in its property market. Stocks in Hong Kong have taken a particularly hard hit.
This year’s big gains for global markets may carry a downside, though: Some possible future returns may have been pulled forward, limiting the upside from here.
Europe’s economy has been flirting with recession for a while, for example, and many economists expect it to remain under pressure in 2024 because of all the hikes to interest rates that have already been pushed through.
And while central banks around the world may be set to cut interest rates later in 2024, which would relieve pressure on the economy and financial system, rates are unlikely to return to the lows that followed the 2008 financial crisis, according to researchers at investment giant Vanguard. That new normal for rates could also hem in returns for stocks and make markets more volatile.
For the next decade, Vanguard says U.S. stocks could return an annualized 4.2% to 6.2%, well below their recent run. It’s forecasting stronger potential returns from stocks abroad, both in the emerging and developed worlds.
