The market at a glance: Jingle bells

As the year ends, the financial markets have wrapped it up with a more than welcome gift: solid performance across almost all asset classes, pushing our portfolios further into green territory. 2023 wasn't exactly easy, so seeing patience rewarded is heartening. Before we step into 2024, let’s take a moment to reflect. 

 In our “Market at a Glance” section, we'll delve into the market activity during the vibrant month of November. 

In our “Demystification Room” section, we’ll explore a rather intriguing question: Is there such a thing as the “December” or “January” effect in financial markets? 

And as usual, because our schedule is as bustling as the markets, we're excited to share important news and other significant updates with you. 

On behalf of Alpian, I wish you a joyful festive season. 

Market at a glance: Jingle Bells 

Key takeaways  

• November 2023 was remarkable for financial markets, with U.S. equities seeing a 9.6% gain, marking it among the top performing months since 1950. This rally included broader stock participation, contrasting with earlier trends. 

• The surge is attributed to a shift in investor sentiment, despite only marginal macroeconomic improvements. 

• Despite the recent gains, many investors' portfolios have not yet recovered from the past two years' losses. 

• The bond market experienced one of its best months in nearly 40 years, driven by the anticipation of lower interest rates. 

• Digital assets, particularly Bitcoin, saw significant gains, while commodities, except gold, declined. Surprisingly, energy and food prices dropped despite tight supply and increasing demand. 

• The Swiss Franc (CHF) continued to strengthen against other currencies, affecting foreign investment returns. Hedging was beneficial for EUR and USD investments. 

• The positive trend in November raises questions about market complacency, but the outlook for 2024 remains optimistic, with diverse investment opportunities emerging in various asset classes. 

• Bonds and digital assets are expected to perform well, potentially easing market navigation in the coming year. 

This year we made a promise: to spare you from Mariah Carey's music in this Christmas edition of the newsletter. Nevertheless, to stay in the festive season spirit, we've selected an album that, in our opinion, should delight even the most discerning music lovers while still honoring tradition.  

Our pick for this month is “A very chilly Christmas” by the eccentric Canadian pianist Chilly Gonzalez. In this album, Chilly offers a fresh take on old carols and modern pop standards. An interesting twist is that most songs have been transposed from major to minor mode, adding an element of mystery. And for those who are nostalgic for Mariah Carey, you’ll find a very poetic version of the standard “All I want for Christmas” on the album. 

You may wonder why we picked this album to illustrate our market analysis. Here’s the reason: Markets seem to believe that Santa Claus is coming soon, because what a month November was! Let's review some of the action in detail:  

What happened with equities? 

November 2023 will surely enter the annals of history. With a monthly gain of 9.6% for US equities and most global equity indices, it ranks among the top 20 best months since 1950.  

And for once, the invitation to the party was extended to all stocks. Since the beginning of the year, the performance of the markets had been driven by a handful of the largest stocks, but smaller companies struggled to follow. However, now we’re seeing broader participation.  

What is the reason behind this November rally? Well, it didn't have to do with the macroeconomic figures and the comments of central bankers, but with a change in the investor's mood. 

Yes, the recent data points to less inflation and slightly more growth, but the improvement was too marginal to justify euphoria. As time passes, investors are more confident that inflation is indeed transitory and that if the cure (higher interest rates) is not killing the patient (the economy), then there is reason to hope.  

We’d also like to put things in perspective. Despite this rally, most investors' portfolios have not recovered their losses from the past two years. We’re barely back to the levels we saw in December 2021. 

What happened with bonds?

The bond market was not short of records either. After a three-year string of losses, they're making a comeback, recording one of their best monthly performances in nearly 40 years.  

The rationale here is a bit more obvious. Each time inflation ticks lower, it increases the chances that central banks will stop hiking rates and even start cutting them next year.  

Lower rates mean higher bond prices, and investors are seizing the opportunity. So, if you can lock in interesting yields now and enjoy higher prices when central banks change their policy tone, this makes a compelling investment case.  

To provide some numbers, investors are betting that in one year's time, the policy rates should be around 4% in the US (versus 5.5% today) and 1.1% in Switzerland (versus 1.75% today). As always, forecasts and market expectations are to be taken with a pinch of salt, but they’re at least a good indicator of investors' current mood. 

What happened with commodities, currencies, and digital assets? 

Christmas also worked its magic in the digital assets market. Bitcoin is up almost 150% since the beginning of the year, and the largest cryptocurrencies have joined the sleigh ride too.  

The only absentees from the November party were commodities. While gold tried to hold the fort, energy, and food prices were down. The lower energy prices come as a surprise, as supply remains tight, and demand is picking up. But let’s not complain - lower commodity prices are generally good news for the world.  

Finally, we would like to say a few words about currencies, a topic we often receive questions on. For Swiss investors, the CHF is both a curse and a blessing. It’s a blessing when it comes to traveling or shopping online for Christmas, but a curse when investing abroad.  

This year again, our currency appreciated against most other currencies, and investors who bought foreign assets left a portion of their gains on the table. Deciding whether to hedge currencies is always a tricky question, as the cost is not negligible. However, this year, hedging was once again the best strategy for the EUR and USD, and we did so accordingly. 

So, to conclude, November was a good month for portfolios, and it feels good. Are markets being too complacent? Probably, but you also know our view: not being able to seize returns when markets are going up is an equally ugly flaw.  

While we cannot discount the possibility of December being more turbulent, particularly as liquidity tends to diminish at year's end, our outlook for 2024 remains optimistic. We see a diverse array of opportunities emerging as the range of asset classes available for building a diversified portfolio has expanded.  

If bonds continue their strong performance and digital assets gain even more mainstream acceptance, navigating through challenging market conditions might become more manageable.  

With this optimistic perspective, see you in 2024! 

Demystification room: Is there any surprising Seasonal Magic behind your investments? 

Is there such a thing as a December or January effect in markets? Do markets tend to show better performance in this period?  

If you ever heard people discussing this topic and wondered if there was any truth to it, we provide here some facts.  

With individuals heading off for the winter holiday season, companies taking breaks, and businesses making last-minute Christmas offerings to round off their accounting with favorable figures, it's natural to assume that these activities have some impact on the financial markets.  

We delved into this data to explore potential patterns, and what we discovered over a long period is intriguing. December regularly stood out with remarkable returns, averaging 1.21% across markets, compared to the overall yearly average of 0.52%. January also held its own with an average return of 0.94%.  

Upon closer scrutiny of well-established markets, the S&P 500 emerges as a notably stable index. Historically, December and January have shown slightly more favorable performance than the rest of the year, averaging since 1927. Over the past four decades, the Swiss Market Index and Euro Stoxx 50 have consistently demonstrated superior returns in December compared to January. In contrast, Japan and Gold consistently showcased a more favorable performance in December compared to January.  

The January and December Effect has appeared to wane in recent decades.  

While December and January have historically been more bullish months, this trend is not consistent every year. For instance, December 2022 was rather disappointing. The month of January experienced negative returns for three consecutive years from 2014 to 2016. So, it is important to take statistics with a pinch of salt when investing. 

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