Hello, and thanks for joining us. My name is Andy Miller. I'm lead investment director with quilter investors, and I'm joined today by our investment strategist, Lindsay James. We're going to give you a rundown on market returns over the course of last year and talk about the opportunities that lie ahead.
So, Lindsay, can you talk us through how markets performed over the course of 2023?
Yeah. Certainly. So for the first three quarters of the year, the message from central banks had been of interest rates staying high for longer than they previously might have done. And this really kept a cap on the sort of investment returns that we saw across the globe, although there was one small area of big US technology companies which drove the bulk of returns for those first three quarters.
Now towards the end of the year, we saw that performance really broaden out, and that partly came about because inflation numbers started to come down really quite quickly across the developed world, but also because central banks led by the US started to change that tone around interest rates a little bit more. The Federal Reserve met in December and started to suggest that they would be cutting interest rates more significantly than the market had expected in 2024. And so we saw a Santa Raleigh, although really, it wasn't Santa that we had to thank for this one. It it was Jerome Powell in the US.
Oh, Powell, okay, rather than Santa. And and we are reviewing the last quarter. So if if I had been invested in cash, higher interest rates, an attractive proposition for many people, I've been invested in cash over the course of the last quarter as opposed to having my money invested in a mixture of equities and bonds, how would I have got on?
Well, we actually saw the IA twenty to sixty percent mixed asset sector, which is the biggest of our comparators. It's the most popular classification for multi asset portfolios.
We saw that return just over five and a half percent in the fourth quarter. Now cash return only just over one percent. So you can see there was this magnitude of difference for those that had stayed invested and we're willing to take the ups and downs of the market for those long term gains, are really over and above cash. And that underlines that message that we've been saying about staying invested, particularly in an environment of high inflation, and the message around markets tend to do best at that sort of turning point, that early stage of rate cuts, and we started to see signs that this is now on the horizon, and so markets really did move quite aggressively in the fourth quarter and benefited those who were invested in financial assets rather than cash. At the same time, we saw personal savings rates on offer from banks really coming down quite quickly.
Thank you, Lindsay. So 2023 was actually a good year to be invested didn't always feel like that at the time, but it never really does at the time. And in particular, over Q4, I think you were pointing at some very healthy market returns. So that brings us on to looking at the year ahead twenty twenty four. So we do not have a crystal ball. We cannot say exactly what markets, how they will perform over the course of this year. What do you think will be the main things that drive markets this year?
Okay. Well, I think we need to separate the economy and the markets for of all, if we're talking about the year ahead, when we look at the economy, really, we do see it gradually slowing down, but potentially not falling into recession in the US, whereas that is still a risk in the UK and Europe. However, if growth starts to often we're more likely to see interest rates coming down by a greater magnitude and more quickly.
Financial markets care about interest rates first and foremost. They know that growth is coming down. And so what could be bad news for the economy could actually end up being good news for financial markets. There's a lot in the press about the timing of rate cuts, the magnitude of rate cuts, whether at the first one in the US will be March or May, whether they'll start in the summer in the UK and Europe or even a little bit later, but actually what really matters is the message that interest rates will be coming down next year. Probably by quite a significant amount. And when we look at history, that's usually a pretty good time to be invested.
Lindsay, thank you very much, and thank you for your time today. I hope you found it interesting, informative, and useful.
