Private Investor's Diary: Stock market hangover was inevitable – but don't lose hope

It was a tremendous end to 2023 for equity and bond investors. Inflation on both sides of the Atlantic came in below expectations. Inflation falling more than expected led to increased optimism that interest rates would soon be on a downward path. Investors were not disabused of this notion by the chairman of the Federal Reserve. At the December meeting, Jerome Powell opened the way to three interest cuts in 2024. The market widely anticipated the first in March. Government bond yields fell dramatically. The US Treasury 10-year yield ended the year at 3.87 per cent. In late October, it hit a 16-year high of 5 per cent. It was a similar story in the UK, with the 10-year gilt yield falling to 3.58 per cent, peaking at 4.8 per cent. The 10-year bund yield in Germany dropped from 3 per cent to 2 per cent. 

Equities also rallied strongly. Small and mid-cap stocks led the way. The Russell 2000 in the US topped the list. It was up 11.8 per cent in December and 15.2 per cent in 2023. In the UK, the FTSE Small Cap was up 8.7 per cent, the FTSE 250 up 8.2 per cent, and the Aim All-Share was 7 per cent higher. The 4.5 per cent return for the FTSE All-Share (TR) Index in December was held back by its exposure to large-cap stocks, with the FTSE 100 up only 3.9 per cent. For the year as a whole, the All-Share was up 7.9 per cent on a total return basis.