Pension and Financial Markets Performance Update: Q4 2023

What’s been happening in the markets

What a difference a year makes.

As we entered 2023 most people were predicting plummeting share prices, rising unemployment and shrinking economies but the final quarter of 2023 saw bumper and unexpected gains for stock markets globally, resulting in a new found optimism for 2024.

The US equity market, in particular, had a rollicking three months, with the S&P 500 rising by more than 10% in the fourth quarter – a very welcome event given US stocks had slumped significantly in the previous three months, with the fall beginning to spook investors.

The big turning point came when the US Federal Reserve decided to leave interest rates unchanged at its meeting in December and then surprised investors by indicating it would cut rates by more than expected in 2024. This came after the Fed had ratcheted up rates 11 times in the previous 20 months, the most aggressive series of increases since the early 1980s. According to Fed chair Jerome Powell:

“Inflation has eased from its highs, and this has come without a significant increase in unemployment. That’s very good news,”

Christmas came early and the news sent share prices soaring. Why? Because falling interest rates enable companies to access cheaper debt to grow their businesses, which in turn is typically good for stock markets (and consequently the performance of your pension fund).

That good news spread around the globe and both European and UK equities also soared in December, with investors betting that the Bank of England and the European Central Bank would also stop increasing interest rates and begin cutting throughout 2024.

That optimism meant the pan-European Stoxx 600 index, which tracks the performance of 600 companies across Europe, finished the year almost 13% higher than when it started, while the UK’s FTSE 100 had its best monthly gain in December since the previous January.

The U.S. Market: A Comeback Kid Story

Once again the US stock market came to the rescue, with a powerful display in the final three months of 2023. The S&P 500 – made up of the 500 biggest companies in the US – closed at a record high on the last day of trading in 2023 and finished the year almost 25% higher than when it started.

Meanwhile, the S&P 500’s increase in the final three months of the year was its largest quarterly rise since the fourth quarter of 2020.

As already mentioned, the Fed’s decision to leave interest rates unchanged at its meeting in December, followed by its surprise suggestion that it would cut rates by more than expected in 2024, fuelled the rise – but some companies fared much better than others.

Indeed, one of the biggest success stories in the US in 2023 is that of Californian chipmaker Nvidia. It has been riding the wave of the surge in interest in artificial intelligence, with the multinational company being one of the most dominant suppliers of AI hardware and software. As a result, its share price jumped again in the final three months of 2023 and rose by a staggering 240% throughout the year.

Europe: Riding the Wave of Optimism

The feel-good factor that began in the US spread to Europe in the final quarter of last year. News that the Fed would enact more rate cuts than expected in 2024 got investors in Europe excited that the European Central Bank would do the same.

As a result, the pan-European Stoxx 600 index, which tracks the performance of 600 companies across Europe, finished the year almost 13% higher than when it started, with Denmark’s Novo Nordisk being one of the biggest winners of the year.

The health care giant became Europe’s biggest company last year and saw its share price increase by almost 50% over the course of 2023 thanks to the success of its obesity drug Wegovy, which helps patients lose weight as well as decreasing the risk of stroke and heart attack.

Further good news came in November, with figures showing the Eurozone’s annual inflation rate slowed to 2.4% year-on-year – the lowest it has been for more than two years.

This is still above the 2% target set by the European Central Bank, but it gave investors additional hope that the central bank will indeed be able to cut rates this year and inject more life into the economy.

UK: Joining the Party

Britain joined the party in the last three months of 2023 but the US and Europe partied much harder. While the US posted gains of almost 25% across the whole year, the UK notched up gains of just 3.8%, with the FTSE 100 suffering from its lack of giant technology companies, the likes of Apple, Amazon, and Microsoft, which are listed in the US and have rocketed as a result of soaring interest in AI.

The volatile political landscape appears to have put off some investors but there were some clear winners in 2023, with Marks & Spencer and Rolls-Royce being two of the stand-out names.

Such has been the turnaround at M&S, on the back of a revamp of its shops and clothing range, that the retailer returned to the FTSE 100 index of Britain’s biggest listed companies for the first time in four years at the end of August as a result of its rapidly increasing share price. The value of the company has outstripped that of others with its share price spiking more than 120% in 2023.

Jet engine maker Rolls-Royce, meanwhile, rose 120% on the back of a recovery in air travel in 2023, a consequence of the global coronavirus pandemic lockdowns coming to an end.

Penfold: Strong Performance

As markets rejoiced, so did all of our pension plans, which made gains across the board in the final quarter of last year. Global equities finished the quarter higher and our pension plans joined in, with strong performances from all our funds.

What makes this possible? There’s no hidden secret. Penfold’s funds are built on strategically diversified portfolios designed to decrease risk exposure, limit potential losses, and improve overall investment performance.

Discover Penfold’s App

Haven’t explored the Penfold app yet? You're in for a treat! As soon as you open the app, your pension’s total value greets you, making it a breeze to keep track of your savings. Want to peek at how your pension's investments are performing? Simply tap ‘Your Plan’ at the bottom of the screen

The home screen is also your window into all the latest happenings in your pension, much like a handy bank statement. And here’s a nifty feature: got some extra cash? Boost your pension in a jiffy by tapping ‘Add money’. Think of our app as your pension’s cozy little home, right in your pocket, ready for you whenever you need a quick check-in or a financial top-up.

Risk warning

With investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice and past performance is not a reliable indicator of future performance.