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If your memory fails to confirm my assertion, here’s a number that does: The correlation between monthly changes in the 10-year rate and the S&P 500 was a striking -0.78 last year, meaning that stocks systematically fell in months when the interest rate rose, and vice versa. In 2022, it was -0,53 and in 2021 just -0,18. Even STOXX Europe 600, arguably a bit more independent of US interest rates, had a correlation last year of -0.63.

Such, at least, was the concurrent behaviour of stock market last year. In my opinion, it’s really just another example of market myopia. To wit: The US 10-year rate ended 2023 at precisely the same level as one year before. If two decimals suffice, it was all about going from 3.88 % to 3.88%. Big deal.

Yes, of course, expectations have changed a lot. Whereas, going into 2023, there was fear that interest rates might have to go a lot higher to quell the seemingly stubborn inflation, we are now looking forward to a possible Fed cut as early as March.

The S&P 500 reflected this change to the full, recording a total return of 26.3% in 2023, on the back of a very strong December. STOXX Europe 600 recorded a somewhat more moderate but still impressive return of 16.5%.

Do these figures feed your latent fear of heights? They shouldn’t. Value creation does not observe the calendar; it’s just measured that way – quite natural, you might say, after we’ve just celebrated New Year’s Eve. If we include 2022 in our calculations, the average annual returns fall to 1.7% and 2.3%, respectively.

In the meantime, earnings estimates have risen and pricing multiples have fallen on both sides of the Atlantic. This is even more pronounced if we go back yet another year, to the start of 2021. In P/E terms, the S&P 500 price tag has been cut by 15%, while the STOXX Europe 600 has become 29% cheaper.

That’s probably not how you’re used to summing up the past at the beginning of January – but it’s certainly no less valid than the interest rate tango we saw in 2023.

 Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.



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