Financial Market Update – Q3 2023

Financial markets the world over have been through nothing short of a turbulent time. Covid, Brexit, war and an overall cost of livings crisis affecting many have resulted in high levels of volatility thanks to high inflation and interest rate hikes amongst other things.

The third quarter of 2023 has remained mixed in terms of performance; volatility doesn’t only mean negativity – we’ve seen a lot of positives – it can just make for an unsettling time as an investor. The good news is, this isn’t the first time the markets have seen such changeability and history teaches us that each storm will pass.

So what’s been going on at a global level?

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Stocks

The major stock indices in the USA, Europe and Asia all fell.

1. S&P 500 index in the United States fell by 3.6%
   

2. STOXX Europe 600 index in Europe fell by 2.5%
   

3. MSCI Asia ex-Japan fell by 5.2%

Bonds

There were increases in the yields on bonds around the world:

1. 10-year US Treasury note yield rose 3.81% to 4.57%
   

2. 10-year German government bond yield rose from 2.39% to 2.84%
   

3. 10-year Japanese government bond yield doubled from 0.25% to 0.5%

Commodities

Commodity prices were significantly impacted with the price of oil increasing by almost 30% and the price of copper falling in the third quarter of 2023.

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Why has this been happening?

1. Fear of recession: despite the UK economy growing, there still remains concerns about a global recession due to slowing economic growth and high inflation. This has a knock-on effect on investors who become more risk averse, affecting the stock market
   

2. Rising interest rates: an increase in interest rates has a negative impact on stocks and bonds due simply to the fact that it becomes more expensive for investors to buy assets and companies to borrow money
   

3. Geopolitical uncertainty: wars and other tensions continue to impact global markets

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What’s the outlook for Q4?

As is often the case, the outlook remains uncertain. The central banks’ policies for interest rates will be closely watched by investors, as will geopolitical developments including the situation in the Middle East.

More volatility is to be expected if the economy is further slowed by another aggressive interest rate increase. But equally, if inflation continues to reduce and a recession is avoided, the markets could recover well.

Other points to consider are that the fourth quarter of the year is ‘earnings season’. If earnings are strong, market performance could improve. But if they disappoint, it’s likely to lead to a selling off of stocks.

Political upheaval can weigh on financial markets so the US midterm elections could have an impact too. Should the Democrats remain in control, this is likely to have a positive effect but if they lose, policy uncertainty may cause some worry.

If you have any concerns about your financial position, please don’t hesitate to get in touch. Please note, this blog does not constitute financial advice.

The value of investments may go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.