Mercer market review 

Markets can move rapidly and conditions can change based on macro- and micro-economic news and data. At times, it can be difficult to keep up and to determine the important information from the noise.

Our global investments analysts and researchers, and market and asset class specialists, are constantly monitoring markets to identify the most important developments and potential opportunities. 

Our monthly and quarterly insights reports provide a summary of what we believe to be the most significant news points and market movements and attempt to explain them, aiming to keep you on track and informed while still allowing you to keep a focus on the long term.

Global equities and fixed income rallied in November. US equities outperformed emerging market equities and were generally in-line with international developed equities.  Growth outperformed value given interest rate sensitivity. The rally was largely driven by decreasing bond yields across the curve, with the US 10-year and 30-year yields falling by ~50 basis points in November. The VIX equity volatility index fell to its lowest reading since early 2020. Falling inflation, the absence of further rate hikes by major central banks and a slowing yet resilient economy strengthened investors’ conviction in a soft landing. 

In the US, the forward-looking composite purchasing manager index (PMI) remained in expansionary territory. Consumer confidence rose from a recent low. The labour market slowed and the unemployment rate marginally increased but remained near a multi-decade low. Outside of the US, growth remains weaker in developed economies as PMIs generally remain between marginal expansion and slight contraction. The Chinese economy remained weak with the Compositae PMI falling to the lowest level for the year while its manufacturing PMI returned to contraction territory.

US headline inflation slowed in October to 3.2% year-over-year, below market forecasts, and core inflation also fell. Inflation in the UK and Eurozone fell, while inflation in Japan rose. China experienced deflation with a modest decline in quarter-over-quarter inflation. Overall inflation continues to trend downwards in most major regions, but it remains above central bank targets. Major central banks left interest rates unchanged but kept the option of further tightening open if inflation does not continue to move toward their targets. 

In terms of geopolitics, China’s Xi Jinping met with President Biden during a summit in San Francisco and they reached agreements on re-establishing military communications and implementing policies intended to curb fentanyl flows into the US. Israel and Hamas reached an agreement for a temporary cease-fire, although it expired around month-end. Geopolitical events did not have a significant market impact this month. 

The US dollar weakened against most major developed and emerging market currencies during November amid risk-on sentiment, and it is now hovering near 4-month lows. Falling real yields supported gold. REITs outperformed broader equities due to their more cyclical nature and interest rate sensitivity. Commodities had a weak month as oil prices fell sharply. Around month-end, OPEC+ oil producers agreed to increased supply cuts extending into early 2024.

Global equity markets experienced a decline in the quarter, primarily due to an increase in longer-term rates as markets anticipated a prolonged period of higher rates. Volatility remained low for most of the quarter but rose in the final weeks alongside the spike in rates.

Treasury yields generally rose during the quarter, and the yield curve became less inverted. The 2-year Treasury yield rose 16 bps from 4.9% to 5.0% during Q3, while the 30-year Treasury yield rose 88 bps from 3.8% to 4.7%.  Credit spreads remained relatively stable during the quarter for both investment-grade and high yield bonds.

The Bloomberg Aggregate Bond Index fell 3.2% in Q3, while the MSCI ACWI declined 3.4%. Consequently, a traditional 60/40 portfolio fell 3.3%.  Year-to-date, a 60/40 portfolio has gained 5.6%.