Late October marked the beginning of an exceptionally strong rally in the markets, making it one of the most aggressive in recent decades, according to Deutsche Bank Research. This rally resulted in significant returns across various assets and managed to turn bond losses into gains by the end of the year.
Jim Reid from Deutsche Bank Research noted that if the rally had stopped in late October, bonds would have experienced their third consecutive annual loss. However, the favorable “seasonals” and investors’ optimism about a “soft landing” and potential interest rate cuts in 2024 fueled a surge in the final two months of the year. As a result, bonds finished 2023 in positive territory, and the S&P 500 achieved a remarkable 26.3% surge on a total return basis.
Reid emphasized that this year-end surge played a crucial role in the recovery of bonds, with Bloomberg’s global aggregate recording a total return of +5.7%. Until mid-November, bonds remained in negative territory before the rally propelled them to positive gains.
Deutsche Bank provided an overview of asset performances during the rally from October 27 to the end of 2023. As per Reid, the final nine weeks significantly drove returns, and the seasonals played a fundamental role in this success.
While the market rally continued into 2024, the U.S. stock market opened on a slightly negative note due to rising Treasury yields. The Dow Jones Industrial Average (DJIA) experienced a modest 0.2% increase, but the S&P 500 (SPX) was down 0.4%, and the Nasdaq Composite (COMP) dropped 1.3%, according to FactSet data at last check.
In the U.S. bond market, Treasury yields showed an upward trend, with the rate on the 10-year Treasury note (BX:TMUBMUSD10Y) rising approximately six basis points to around 3.94% in early afternoon trading on Tuesday. It is important to note that bond yields and prices move in opposite directions.
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