European stocks secured marginal gains on the final trading day of the year, contributing to the robust global market performance seen in 2023. The Stoxx Europe 600 index experienced a 0.2% uptick at the opening, concluding the year with a 13% overall advance. Simultaneously, global shares maintained their trajectory for the most substantial annual growth since 2019. This comes as US futures edged higher, with the S&P 500 nearing its all-time high, achieving an impressive 2023 advance of nearly 25%. The MSCI All Country World Index showcased a yearly rally of about 20%.
In the currency market, the dollar exhibited weakness against the majority of its major counterparts on Friday, characterized by thin liquidity. The dollar is poised for its most significant annual loss since the onset of the pandemic, reflecting expectations that the Federal Reserve will adopt an aggressive interest rate-cutting stance in 2024. Meanwhile, Treasuries managed to hold onto Thursday’s losses, while global bonds maintained a trajectory toward their most substantial two-month gain on record.
Brian Barish, Chief Investment Officer of Cambiar Investors LLC, attributed the market rally to the belief that major central banks have adequately addressed the inflationary challenges of 2022-23. Barish highlighted potential concerns such as elections, substantial bond funding requirements of the US government, and the resurgence of inflation. However, the current lack of significant news and limited selling activity has contributed to the prevailing positive sentiment.
While warnings about overbought signals in the market have surfaced, suggesting the possibility of a pullback, market observers caution that traders may have priced in a dovish Fed pivot too swiftly.
Quincy Krosby, Chief Global Strategist for LPL Financial, acknowledged signs of market fatigue and the need for consolidation but expressed confidence that as long as broad participation persists, bullish sentiment will support indexes navigating geopolitical and domestic scenarios.
In currency movements, the yen is on track for its most substantial monthly gain against the greenback this year, with Bank of Japan Governor Kazuo Ueda preparing for the nation’s first rate increase since 2007. The yuan has strengthened against the dollar, reaching its highest point since June, with expectations for continued strengthening in 2024.
Oil, however, is set to conclude the year with its most significant annual drop since 2020, despite war events and OPEC+ production cuts failing to boost prices.
As the year closes, market participants remain vigilant, acknowledging the potential for market consolidation and the need for ongoing positive sentiment to navigate uncertainties in the coming year.
