Global stock markets cap 2023 with a bang but head into 2024 facing uncertainties

Major global stock markets closed out 2023 trading on Friday with mixed results, with Wall Street posting its best annual rise since 2019 as it enters the new year amid the backdrop of economic and political uncertainty.

The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all fell at the close of the last trading day of 2023, but defied expectations for the year after having recorded strong gains despite the shadows of high interest rates and recession fears.

The indices ended down 0.3 per cent, 0.1 per cent and 0.6 per cent, respectively – but were still big winners for all of 2023.

The benchmark S&P 500 settled more than 24 per cent higher this year, thanks to a stellar run in megacap technology stocks. It was also just a little short of its record closing high it recorded on January 3, 2022.

The so-called Magnificent Seven stocks – comprised of the biggest technology companies – all logged remarkable runs in 2023.

Chipmaker Nvidia, among those at the forefront of the generative artificial intelligence derby, spiked nearly 239 per cent as it ramped up the development and manufacturing of processors designed for the growing and powerful technology.

Meta Platforms, the parent company of Facebook and another big generative AI player, and Elon Musk's electric vehicle manufacturer Tesla Motors also recorded triple-digit stock growth at 194.1 per cent and 101.7 per cent, respectively.

Amazon, the world's biggest e-commerce company, surged almost 81 per cent, while Google parent Alphabet leapt 58.3 per cent. Microsoft and Apple jumped 56.8 per cent and 48.2 per cent, respectively. All four companies are also involved in generative AI.

The Dow rose 13.7 per cent and the tech-heavy Nasdaq surged 13.7 per cent and 43.4 per cent, respectively, in 2023.

Despite the strength in technology stocks, questions remain on how they would perform in 2024, with expectations for a slowdown, said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

“The million-dollar question is what will happen next year. Of course, we don’t know, nobody knows, and our crystal balls completely missed the AI rally that marked 2023, yet the general expectation is a cool down in the technology rally,” she said.

Meanwhile, inflation, remains high and has been the focal point of the Federal Reserve's run of interest rate hikes.

Markets, however, cheered on December 13 when the Fed signalled it could cut interest rates multiple times in 2024, but chairman Jerome Powell sought to balance that optimism with a more cautious tone after suggesting rates have reached their peak.

Investors are now widely expecting the Fed to begin slashing interest rates in March, CME FedWatch said.

“The US stock market could continue to see gains with investors showing a positive sentiment overall,” said George Pavel, general manager at Capex.com Middle East.

“The more dovish stance of the Federal Reserve could also support a stronger performance and a more risk-on sentiment.”

Markets are also concerned with potential implications from political drama, particularly between President Joe Biden, who has become unpopular with his handling of the Israel-Gaza war, and Donald Trump, who is facing his own legal troubles but is still considered the front-runner to challenge Mr Biden in this year's elections.

“The uncertainty premium of political dysfunction in the US is very high and not measurable … the country is faced with a Biden-Trump rematch that it doesn't want,” said David Kotok, chief investment officer of Cumberland Advisors.

In Europe, London's FTSE 100 inched up 0.1 per cent at the close on Friday and gained less than 4 per cent for all of 2023, amid worries that interest rates could remain high due to inflation.

Frankfurt's DAX and Paris' CAC 40 also settled marginally up, but posted an annual rise of 20.3 per cent and 16.5 per cent, respectively, with both indices recently recording fresh highs.

Earlier in Asia, Tokyo's Nikkei 225 settled 0.2 per cent down but still recorded a 28 per cent surge for 2023, its best showing in a decade.

Hong Kong's Hang Seng index was flat and the Shanghai Composite rose 0.7 per cent, and were down 14 per cent and 3.7 per cent, respectively, for the year.

China, the world's second-largest economy, is grappling with economic uncertainty, as the robust post-pandemic activity that helped prop up its economy has begun to fade.

In commodities, oil prices, which endured another roller-coaster ride in 2023, posted their biggest annual drop since 2020 amid persistent concerns about lower demand as well as geopolitical and economic uncertainties.

Brent shed 0.14 per cent to settle at $77.04 per barrel on Friday, while West Texas Intermediate declined 0.17 per cent to finish at $71.65 a barrel.

Gold, meanwhile, ended the year down but remained well above the key $2,000 level for its best year since 2020, boosted by expectations that the Fed may cut interest rates as early as March.

Spot gold shed about 0.6 per cent to settle at $2,071.80 per ounce. The price of the precious metal rose around 13 per cent in 2023, touching lows near $1,800 and a record high of $2,135.40 on December 4.