Endowus Q4 2023 Market Update and Outlook — The year of AI
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Endowus Q4 2023 Market Update and Outlook — The year of AI

2 Feb
25 Jan
  • In 2023, the US stock market saw remarkable growth, driven by AI's impact, with the Magnificent 7, collectively yielding an average return of 111.6%.
  • The Federal Reserve's pause in rate hikes also contributed to market optimism, fostering hopes for a "soft landing" despite potential economic challenges, as indicated by unchanged rates and the December dot plot.
  • Global equity markets posted strong returns in Q4 2023, with the MSCI ACWI returning 22.2% for the year (in USD terms). Developed markets, particularly the US, outperformed emerging markets.
  • In the fixed income markets, expectations of rate cuts in 2024 supported a robust Q4 performance, especially in high yield bonds. Commodities, however, declined in Q4, with energy and crude oil significantly impacted, while gold showed positive returns.

The rise of ChatGPT and AI

Even though 2023 was the year when awareness of AI and the power of harnessing this new technology (through ChatGPT) reached its peak in a decade, ChatGPT, and at its core, NLP (Natural Language Processing) have been a long time in the making. 

Source: dataiku

The way we communicate and live have been fundamentally altered by AI. For example, ChatGPT excels in creating well-crafted emails, offering virtual assistance, and breaking down language barriers with real-time translation. In the business realm, AI enhances customer service through round-the-clock chatbots, offering quick and accurate responses. 

It is no wonder then that, while popular applications like Facebook, Spotify and Instagram took between 75 days to 300 days to reach 1 million users, it took ChatGPT only 5 days.

Rise of the US stock market, powered by AI

AI’s impact has not been limited to just everyday life and work. The Magnificent 7, the collective term given to AAPL, AMZN, GOOG, META, MSFT, NVDA and TSLA, on average, returned an impressive 111.6% last year. These seven companies are seen to have benefited greatly from the rise in AI, such as Microsoft through its direct investment in OpenAI, and Nvidia as the key beneficiary of the boom in investment in AI technology and infrastructure with its essential chips.

Not only did AI power Nasdaq’s stellar returns in 2023, it was also a crucial driver in the strong performance of the S&P 500 Index.

Soft landing or ..

Another factor powering the rise in the US markets is of course the more important but less sensationalised halt in the Fed rate hikes.

Economists and market observers alike are becoming increasingly optimistic that the Fed may have engineered the elusive soft landing. Factors such as inflation trending downwards amidst weakening demand as well as lower job growth seem to point towards the likelihood of success.

However, the prospect of a perfect soft landing still faces substantial challenges. One concern is the delayed impact of monetary policy and the consequences of swift rate hikes on credit and market liquidity. These factors could still drive the economy into a recession. 

Still, the yearning for the rate cuts may materialise if we continue to see inflation tapering and weaker economic numbers. The December Fed Dot Plot had indicated that 16 out of the 19 dots were below 5%, a marked change from the September edition.

Q4 2023 market update

With the exception of China and commodities, almost all the major asset classes and markets ended the fourth quarter of 2023 on a high note. 2023 turned out to be a year of reversal as signs of tapering inflation, cessation of rate hikes and robust performance from AI-related companies collectively fueled the markets’ rebound, overcoming the disappointment from 2022 and lingering uncertainty. 

Global equity market 

The global equity markets, as represented by the MSCI ACWI index, posted double digit returns of 11.0% in the final quarter of 2023. The quarter capped off a spectacular year in the equity markets with the MSCI ACWI returning 22.2% for the year (in USD terms). 

Developed markets, led by the US, outpaced emerging markets in both Q4 and the one year period. Slowing inflation in the US, coupled with weaker economic indicators, reinforced investors’ hope that rate cuts will be forthcoming in 2024. 

Japan, although it did better than Europe for the full year, trailed Europe by over 2% in the fourth quarter as concerns over an appreciating yen against the dollar spilled into the markets. Emerging markets lagged developed markets in 3 out of the 4 quarters in 2023 as China continued to drag on broad market returns as it retracted 4% in Q4 and declined 11% for the year (in USD terms).
In terms of factors, growth companies continued to dominate value companies, both in the fourth quarter and in the one-year period. This trend was consistent in both the developed and emerging markets. As for the size factor, while large cap companies in DM outperformed small cap companies, the reverse was true in emerging markets as EM small cap companies beat EM large cap companies by more than 13% in 2023.

Global fixed income market 

The perceived slight shift in Fed sentiment drove bond returns in the fourth quarter as investors started pricing in rate cuts in 2024. While the Fed’s December dot plot indicated three possible rate cuts in 2024, the other central banks stuck to a more cautious stance regarding inflation by keeping rates steady.

As yields fell across the board, prices rose, making way for a strong Q4 for fixed income, especially in the investment grade credit space, which saw the best quarter in over a decade.

High yield bonds outperformed investment grade with both outpacing government bonds as spreads tightened over the quarter. For the one-year period, high yield generated over 8% more than investment grade. Emerging markets debt also had a good run in Q4, especially the local currency issues. Its annual return in 2023 was also stronger than the global aggregate bond index.

Commodities and gold

Commodities, as represented by the S&P GSCI index, were one of the worst performing asset classes in Q4, as it declined more than 10%. Its return, for the year, was slightly better at  -4.3%. Its performance in the third quarter was the one saving grace in a year of disappointing returns after a bullish 2022.

The decline was largely driven by the energy and crude oil subsectors as energy takes up about half of the index’s weight. Crude oil, after running up 32% in the third quarter, saw a steep drop of 19% in Q4. Gold was the only shining spot in the asset class as it generated 11% in the fourth quarter, bringing its annual return to about 13%.

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Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. 


Whilst Endowus HK Limited (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.

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