Incredibly, we’re now four years removed from the start of the COVID-19 pandemic, which ushered in a period chock-full of uncertainty. We witnessed the uncertainty personally, a lived experience that will never be fully conveyed in future generative AI searches. But we also saw it expressed in the global stock market. Sharp stock market moves, whether up or down, typically result from significant surprises — an unexpected event, technological innovation, or profit impact that companies or investors did not foresee. Perhaps we can define a sharp reaction as a stock market that is up or down by more than 5% in a calendar quarter — an annualized move of more than 21%. Over the past four years, 81% of quarters have seen a move in the All Country World Index (ACWI) global stock index of greater than 5%, including this past quarter. How does that compare with prior years? In the dozen years immediately preceding the pandemic, only 56% of quarters had moves of more than 5% in either direction. The start of the 2020s has certainly been far from boring.
Japan: False Dawn or Land of the Rising Sun?
“Fall down seven times, get up eight” is a Japanese saying of resilience and perseverance. It also succinctly describes the pattern of the Japanese economy over the last 35 years. The Japanese real estate and equity bubble burst in December 1989, and since then the domestic economy has fluctuated between deflation and reflation with 45% of monthly inflation readings indicating falling prices. This situation is unique to Japan, which has been one of the weakest economies among the G7 countries over this timeframe. Japan has repeatedly experienced “false dawns” over the last 35 years where its economy appeared to be escaping the cycle, only to have economic recoveries fizzle out.
Q4 2023 Market Outlook
A lot can change in a year. A year ago, investors were mourning the worst performing year for equities since 2008 and the worst year for bonds in recorded history. There were convincing arguments from notable investors about the end of a decade of easy money, low rates, and a strong global economy. Certainly, the era of low rates may be over or taking a long pause, but it’s clear that we continue to wait for a much-anticipated recession, a recession we could characterize as “chatted up” based on sentiment and past precedence (an inverted yield curve, rising rates, high energy prices, and high inflation). This is reminiscent of the old joke that economists have predicted nine of the last five recessions. Talk of a certain recession has been slowly replaced with talk of the probability of an actual recession, a soft landing, or even no recession at all.
A Silver Lining to the 2024 Outlook
What a difference a year makes! According to the Merriam-Webster dictionary, the word of the year for 2023 was “authentic,” which is certainly a major improvement over “gaslighting,” which was the 2022 word of the year. Transitioning from the negativity of “gaslighting” in 2022 to the positivity of “authentic” in 2023 was mirrored in the global economy and financial markets.
Q3 2023 Market Outlook
“We are navigating by the stars under cloudy skies.” That was how Jerome Powell, Chairman of the U.S. Federal Reserve, recently described the central bank’s task of taming inflation. We can’t think of a more accurate way to describe the central bank’s job, but those words don’t exactly instill confidence in the single most important organization responsible for steering the largest economy in the world.