November 2023

Our message throughout the year has been to expect volatility, and we certainly experienced that in markets over the past couple of months. Notable developments included:

  • On the 7th of October, Hamas attacked Israel, sparking a very serious ongoing situation in the Middle East.
  • In recent days, the main central banks (ECB, Fed, and Bank of England) all opted to keep policy interest rates unchanged.
  • September and October saw a significant move upwards in long-term interest rates as markets adjusted their expectations to the possibility of “higher interest rates for longer.”
  • Inflation fell further.
  • The IMF released its latest economic forecast, showing the slowdown so far and noting the divergent growth prospects across regions.

The net result of all this is that we saw equities and bonds fall in value over the past two months (equities down over 6% in local currency terms and Euro government bonds down over 2%).

As I write this in the early days of November, markets are now experiencing an upturn.

So, the big question for investors is: Have we just come through a correction, and is it onward and upwards from here? It seems to us that many risks remain and indeed some, like geopolitics, have increased. As a result, we remain cautious and expect continued volatility.

2 Months and YTD Market Numbers

Equity Market Performance 1.1.22 to 2.11.23

The volatility of equity markets is evident in the chart below with the ups and downs since July particularly pronounced.

Source: World equities, in local currency. 1.1.22 to 2.11.23

Geopolitical Risks Have Increased

The attack by Hamas on Israel on October 7th and the resulting ongoing war in Gaza is very concerning. When Russia invaded Ukraine they hoped to create division between the main western countries but instead got unity. The Hamas / Israel conflict is creating much more division. The great hope is that the conflict will be contained and if so, the global economic impact should be modest. However, if it was to escalate further, then things become much more difficult. One of the impacts could be an increase in energy costs again. While we have seen some move up in Natural Gas prices, so far oil price moves have been modest.

Interest Rates Higher for Longer?

A notable development in the bond market over the past two months is the rapid rise in rates at the long end of the yield curve. This is significant for both individuals and investors as it directly impacts the pricing of contracts and assets.

The chart below illustrates the movement in US rates, with a similar trend evident in the EU. The yield on 10-year US Treasury bonds increased from 4.1% at the end of August to 5% by October 19th, before slightly retreating by the end of the month. When yields rise, the value of bonds and assets priced off bonds—fall. The upward movement in long bond yields seen recently shows the market’s expectation that interest rates might remain high for an extended period.

Notably, since the Fed meeting last week (on November 1st), sentiment has shifted once again, but in the opposite direction, with both bonds and equities experiencing a rally. This reinforces the point that markets, including the bond market, are subject to volatility.

US Treasury (Bond) Yield Curve

Economic Growth Slowing

The following graph shows the actual slowdown in economies since 2021. The latest forecasts (October 2023) produced by the International Monetary Fund (IMF) shows their outlook for 2024 for the EU and China has deteriorated while it has improved slightly for the US.

The IMF notes the divergent growth prospects across the world’s regions. They state that the increase in interest rates is likely to slow economic activity despite the resilience observed so far in 2023, and they emphasise that there is little margin for policy error.

Central Banks At or Near Peak Policy Rates

Central Banks have all met in recent weeks and opted to hold their policy interest rates at current levels. They remain cautious / hawkish in their outlook about inflation.

Headline Inflation Falling

We can observe in the chart below a notable fall in both headline and core Euro inflation. The rest of the journey towards 2% remains difficult. The risks associated with increased geopolitical risks may actually lead to a rise in inflation if energy prices were to be negatively impacted.

Better Cash Returns Available

As a result of the higher interest rates investors can now access better cash returns via regulated Money Market Funds which target a return in line with the Euro Short-Term rate, which is now at 3.9%.

Our Investment Outlook

We remain cautious in our outlook. This caution stems from:

  • Increased geopolitical risks.
  • The latency in the effects of higher rates.
  • Persistently high core inflation.
  • Divergent indicators that present a mixed economic picture.

Geopolitical risks are significant with bad outcomes not appearing to be priced into markets. The core assumption of markets remains that the Ukraine war will not end or escalate significantly any time soon, and that the situation in the Middle East will remain localised. It is almost impossible to predict with any degree of certainty what may happen in a conflict situation, but the situation in the Middle East in particular adds to the risks and market uncertainty at this time.

Overall, markets are likely to remain volatile until there is more certainty around (a) geopolitical risks, (b) financial stability, (c) core inflation falling back to the target of 2% and (d) the depth and length of economic slowdowns / recessions.

For short-term investors, this is not a market to be in but for our clients who are long-term investors, we continue to advise them to follow their plan and use market weakness to build on positions.

Did You Know?

Global stock markets are valued at $109 Trillion. The US is the largest part and is home to 39 of the largest 100 companies.

Source: Visual Capitalist – The $109 Trillion Global Stock Market in One Chart (

John Tuohy is Chief Executive of Acuvest, an Irish-owned, independent advisory firm specialising in wealth management, pensions, and investment advisory services for individuals, companies, pension schemes, charities, and institutions. John is a Chartered Financial Analyst (CFA) and a Fellow of the Chartered Association of Certified Accountants.