A mixed January ended on a negative note for equities as investors responded to US Fed chair Jerome Powell’s reiteration that a March interest rate cut was unlikely. Longer dated bonds also succumbed to selling pressure.

Investor sentiment suddenly became positive in November, based on expectations that central banks are winning their fight against inflation and are likely to start reducing interest rates as early as the second quarter of next year. The tech-heavy Nasdaq led the charge, breaking a three month losing streak with a 10.8% advance, making it the strongest month this year.

Stock markets struggled for a third consecutive month as concerns persisted regarding the potential impact on the global economy from interest rates remaining higher for longer in the face of still strong activity in the US. In particular, rising yields from longer-dated bonds made it a tough month for both equity and bond investors.

August turned into a poor month for both equities and bonds as surging US rate expectations and weaker growth in Europe and China challenged the Goldilocks scenario. Erratic price action was exacerbated by thin summer liquidity although markets did stage a modest comeback in the final few days.

Equity investors in developed markets were emboldened by continued economic resilience in the face of sky-high interest
rates and inflation entering disinflation territory. Meanwhile, bonds weakened further as central banks continued to hike rates, putting paid to expectations that 2023 may be the Year of the Bond.