Investors enjoyed the traditional ‘Santa rally’ in December as global markets reacted positively to comments from Chair of the Federal Reserve, Jerome Powell, who suggested that further interest rate hikes were unlikely.
Jeremy Powell also hinted that the Federal Reserve may begin cutting rates as early as mid-2024. Markets jumped at the news as they began to price in several rate cuts for 2024, and the Dow Jones Industrial Average index, one of the oldest equity indices in the US, reached a record high as it surpassed 37,000 for the first time ever.
UK markets also saw positive returns during the month, as the Bank of England kept the base rate flat at 5.25%. There were further signs of encouragement as the latest UK inflation data from the ONS showed the Consumer Prices Index dropping further than expected to 3.9%, its lowest level for over two years. The FTSE 250 index, which tracks medium-sized companies in the UK, gained over 8% in December, while the FTSE Small Cap index, which tracks smaller companies, had its best month since November 2020. Bonds and gilts also performed well as yields tumbled during the month. The yield on ten year gilts fell from 4.18% to 3.54% in December – a decline of 0.64%, the largest monthly drop since December 2008.
Full round-up of December market performance
In the UK, the FTSE 100 index rose 3.85% while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index respectively, surged 9.43% and 8.84%. In the US, the S&P 500 USD index gained 4.54% while in Europe the Eurostoxx 50 EUR index climbed 3.22%. Japanese stocks measured by the Topix JPY index slipped 0.23%.
Emerging markets returns were mostly positive, with the MSCI Emerging Markets index rising 3.18% in local currency terms. Latin American equities, measured by the MSCI Latin America local currency index, picked up 6.57% while Indian stocks measured by the Nifty 50 INR index amassed 7.94%. However Chinese stocks measured by the MSCI China CNY index declined 2.47%.
In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, gathered 5.41% with long dated (over 15 years to maturity) gilts fetching 9.82%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, returned 4.65%. In the high yield market, the Bank of America Merrill Lynch Sterling High Yield index grew 2.82%.
In the commodities market, the S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, dropped 3.31%. Brent crude oil futures let slip 5.67% during the month. Returns were mixed in the precious metals markets as the S&P GSCI Gold and Silver indices returned 1.14% and -5.73% in USD respectively, while there were positive returns in the agricultural markets as corn and wheat futures delivered 2.06% and 10.13% in USD respectively.
In the currency markets, it was a mixed month for the pound as it appreciated 0.85% versus the US dollar but conceded 0.51% versus the euro and 4.02% against the yen.
