Santa Claus or the Grinch?

The year may be winding down as we head into November, but things seem to be heating up on markets.

Global equities and bonds have rallied over the past two weeks as investors price in the end of the central bank interest rate hiking cycle, particularly in the US. Can the cheer last all the way to Christmas, or is there a market Grinch lurking somewhere? After all, it has mostly been a disappointing year as far as investment returns go.

A good place to start is to ask where the sudden optimism comes from. Markets had been under pressure since July, so a rebound was always likely. There are always rallies in bear markets and drawdowns in bull markets. Things never move in a straight line, and that is one of the reasons why timing the market is so difficult. Therefore, November may be a good month so far, but it tells us very little about what lies ahead. We need to think about whether the fundamental picture has changed.

Chart 1: Global equities and bonds in 2023 (US$)

Source: LSEG Datastream

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