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Late October marked the start of “one of the most aggressive rallies” in markets over the last few decades, with “massive” returns across assets into year-end turning bond losses into gains, according to Deutsche Bank Research.
“It was a positive year for most financial assets, but in several cases the gains were almost entirely driven by the final two months,” said Deutsche Bank Research’s Jim Reid, in a note Tuesday. “If we’d have stopped in late-October, then bonds would still have been on track for a third consecutive annual loss.”
The rally in the final two months of the year was fueled by favorable “seasonals” as well as investors’ rising hopes for a “soft landing” and interest-rate cuts in 2024, according to the note. Bonds rebounded to finish 2023 in positive territory while the S&P 500 surged 26.3% last year on a total return basis.
“Bonds finally recovered after two consecutive annual losses, with Bloomberg’s global aggregate up +5.7% in total return terms,” Reid wrote. ”But that was only thanks to the year-end surge, since they were still negative for the year until mid-November.”
Here’s what happened across assets in the market rally from Oct. 27 to the end of 2023.
Financial assets including stocks measured by the S&P 500 staged a massive rally in the last two months of 2023, a Deutsche Bank chart shows.
“The seasonals worked a charm last year,” said Reid. “When we look back on 2023 we’ll just see the final numbers but those final 9 weeks really drove returns.”
Meanwhile, the U.S. stock market was kicking off 2024 on a mostly downbeat note as Treasury yields rose based on early afternoon trading Tuesday. The Dow Jones Industrial Average
DJIA
was up 0.2%, but the S&P 500
SPX
was trading down 0.4% while the Nasdaq Composite
COMP
dropped 1.3%, according to FactSet data at last check.
In the U.S. bond market, Treasury yields were climbing, with the rate on the 10-year Treasury note
BX:TMUBMUSD10Y
up about six basis points at around 3.94% in early afternoon trading Tuesday. Bond yields and prices move in opposite directions.
Read: Classic 60/40 mix of stocks and bonds on the verge of historic gains ‘after being written off for dead’
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