SNAPSHOT2 min read

Market update – January 2024

The prospect of rate cuts bolsters markets


Global equities (MSCI Index) have risen by 16% since late October. This was driven by a significant change in market expectations around interest rates, as recent data found that inflation is falling faster than expected. The Federal Reserve (Fed) boosted markets further by signalling large rate cuts in its mid-December policy projections for 2024, with other central banks expected to follow suit. As investors, it is important to look at why the Fed needs to cut rates. Is it because inflation has been well managed? Or is it because unemployment rates are rising? Is it because there are cracks in the economy? If the cuts come about because growth is falling faster than inflation, then that is problematic. That would create headwinds for equities and risky assets. However, for the time being there are good reasons to celebrate as the cost of capital has fallen, not least because of the impact on the cost-of-living crisis.

What does COP 28 mean for investors?

In the first week of January, carbon prices reached the lowest point in 14 months. This decline was driven by market disappointment with the outcome of the COP28 summit, where governments made climate commitments. As a result, futures contracts tied to the EU's emissions trading scheme, which is the largest carbon trading market globally, briefly dropped by up to 4% to below €66 per tonne of carbon emissions in London. The downward trend began weeks earlier when a draft agreement was released, omitting references to the phasing out of fossil fuels. However, there were positives. Nearly every country worldwide agreed to move away from fossil fuels during this decisive decade. The agreement also acknowledged that limiting global warming to 1.5°C would require a nearly 50% reduction in emissions by 2030.

A year of elections

One big theme of 2024 will be elections, with the US, UK and India set to go to the polls this year. In the UK we have seen more political stability, with only one Prime Minister over the last 12 months, despite wide-ranging economic and political challenges. The UK election probably won’t alter the trajectory of global financial markets, but it could have an impact on sterling. Meanwhile, investors will be very focused on what the outcome of the US election will mean for America’s debt trajectory. The result will also have a significant impact on geopolitics, from America’s relations with China to war in Ukraine and Israel.

Our positioning

To guide our transition to a more positive stance on equities, we have been monitoring four key indicators. The most important of these is a peak in interest rates. It now looks increasingly likely that this has been reached. Inflation continues to fall, with the latest US readings at the lowest level in over two years. US wage increases, a key driver of inflation, appear to have at least plateaued as unemployment slowly ticks up. Even if the Fed does not pivot to rate cuts quite as soon as markets currently expect a peak in interest rates is in itself supportive for stock markets. As a result, we have been increasing our exposure to equities across different risk profiles. The recent equity purchases have in part been funded by reducing alternatives and cash. Within Bonds, we remain slightly overweight given they now provide attractive levels of income and could also help to protect portfolios if economic growth slows significantly, and central banks cut interest rates to support growth.

High levels of inflation in the UK have made meeting inflation plus return targets more challenging in the shorter term. Despite this, we remain confident in the ability to meet inflation-plus targets over the longer term.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.