Stock market update – November 2023: a mix of caution and optimism

As 2023 progresses, the financial world evolves with interesting macroeconomic trends. This November, we noticed a blend of cautious optimism in the economy. Despite a few bumps in the road, it’s showing a commendable level of resilience. Our latest market update offers a snapshot of the economic landscape, helping you identify the key trends that matter for your investments. 

In this article, we’ll explore:

• What do declining inflation numbers and market recovery indicate about recent macroeconomic developments?
• How do the top 7 tech giants’ performances compare to the biggest 500 US companies?
• How are these changes affecting your Inyova portfolio?

And here’s something you won’t want to miss – our market update webinar on December 12th, 2023, at 17:00, led by Cristian von Angerer, our Chief Investment Officer. This session is your ticket to understanding the current market dynamics and how they might affect your investment strategy. It’s also a great opportunity to get your questions answered. 

What do declining inflation numbers and market recovery indicate about recent macroeconomic developments?

As we navigate the complexities of the global economy, it’s important to understand how recent trends, particularly in inflation and central bank policies, are shaping the investment landscape. 

Easing global inflation shows signs of economic stabilisation

The global inflation landscape experienced a promising turn in November. In the U.S., the Consumer Price Index (CPI), a measure of average price changes in goods and services, showed a year-over-year increase of 3.2%. This increase indicates a slower pace of inflation and that prices are not rising as quickly as before. 

We saw similar trends mirrored in Europe, including Germany and the broader Eurozone, where inflation rates also fell significantly. Notably, the Eurozone’s inflation rate dipped to its lowest since mid-2021, hitting 2.4%. 

What does this mean? This easing of inflation is a positive signal for the economy and markets, suggesting that prices are not increasing as rapidly as previously feared. This is encouraging news for investors, particularly in sustainable sectors like renewable energy and energy efficiency. Lower inflation means that money retains more purchasing power and cheaper financing for projects and companies, aiding their growth and development.

Potential for stable interest rates with central banks adjusting policies

Central banks worldwide, like the European Central Bank, are paying close attention to the recent drop in inflation rates. Because inflation is decreasing, many think these banks might reduce or even stop increasing interest rates.

It’s important to understand that central banks often adjust interest rates in response to inflation: 

• when inflation is high, they may increase rates to curb spending and slow down price increases; 
• when inflation falls, they may lower rates to encourage spending and economic growth.

This anticipated shift in monetary policy could indicate a more stable and predictable interest rate environment, which is typically favourable for investors. 

Signs of growing investor confidence with equity and bond market resurgence

November was a standout month for both equity and bond markets, reflecting a wave of optimism. Major equity indices, which indicate the performance of the largest companies in the region, experienced a positive development. For example,  the U.S. S&P 500 saw an 8.9% increase, Europe’s STOXX 600 grew by 6.4%, and Switzerland’s SPI climbed by 4.6%. 

The positive development in November suggests that investors are becoming increasingly optimistic about the economic outlook and are more willing to invest in a diverse range of businesses, including those prioritising sustainability and social responsibility. 

How do the top 7 tech giants’ performances compare to the biggest 500 US companies?

In the US equity market landscape, a few giants cast long shadows. The “Magnificent 7” tech companies—Apple, Amazon, Meta, Tesla, Nvidia, Microsoft, and Google—have collectively soared with an 87% increase in stock value year-to-date until the end of October. This meteoric rise sharply contrasts the broader market and emphasises the outsized influence of these companies.

What is the S&P 500?

The S&P 500 is a stock market index representing 500 of the largest U.S. companies, chosen based on how much the company is worth in total, known as market capitalisation. It’s a key tool for understanding how the overall U.S. stock market is doing, including a diverse mix of industries. 

In the S&P 500, bigger companies have a larger influence. This means if a big company’s stock price goes up or down by 1%, it can noticeably affect the entire index. For first-time investors, this index is useful for a snapshot of the U.S. stock market’s overall health and performance.

S&P 500 performance: masked by tech success

While the tech elite have flourished, the S&P 500 index, which includes the “Magnificent 7”, reported a gain of 12%. This disparity suggests that a small group of tech companies is driving much of the market’s growth, potentially skewing investor perceptions of the broader economy’s health.

Equal Weight Index reveals the underlying market reality

The story looks quite different once we adjust the lens to view the S&P 500 Equal Weight Index (EWI), where each of the 500 companies contributes equally and not proportionally by size. In the equal-weight version of the widely-used S&P 500, the index includes the same constituents as the S&P 500, but each company in the S&P 500 EWI is weighted the same. 

Suddenly, the equally weighted S&P 500 reveals a decrease of 1.5% instead of an increase of 12%. This discrepancy is jarring. It indicates that many of America’s largest firms aren’t experiencing the same success as the tech titans. In fact, it shows mixed messages about how companies outside of these few elites are holding up in this economic environment.

Assessing market concentration and economic health

This observation reveals that the current stock market is primarily influenced by a few big companies, the “Magnificent 7”. Their dominance underscores the need for diversifying investments across various sectors. This approach is key to reducing risks that come with focusing too much on one area, like technology. 

The tech sector’s innovation and growth, as evidenced by the dominance of the Magnificent 7, demonstrate sector-specific strengths but also remind us of the volatility and unpredictability inherent in markets driven by a few major players. Understanding the broader economic landscape, beyond the success of these select companies, is essential in navigating the complexities of the market.

How are these developments affecting your Inyova portfolio?

November’s markets experienced a ‘Relief Rally,’ particularly noticeable in the equity markets, responding to lower-than-expected inflation figures. This shift from apprehension to cautious optimism, driven by these favourable economic indicators, can potentially increase the value of stock investments in your diversified Inyova portfolio. The resilience of your portfolio is further emphasised by its diverse investments in sectors like AI and climate change, which help cushion market fluctuations.

Reach out for support

If you have any questions about your portfolio, please reach out to our Customer Success team. You can email us at [email protected] or call +49 69 120 01237. We’re here to help!