Weekly Market Update- Week Ending 08/12/2023

It was a broadly positive week, with gains seen across European and American equity markets.

On Thursday we got house price data from Halifax. The bank announced that prices rose for a second consecutive month, gaining 0.5% in November, indicating that the market is showing signs of stabilisation. Stocks connected to the construction industry and housebuilders in particular were positive on the news. Supply shortages have been sighted as the reason for the uptick in prices, rather than a fundamental increase in buyer demand. Most market participants still forecast prices to decline in 2024. On an annual basis, prices are 1% lower than last November, with the average house price now £283,615, but still over £40,000 higher than before the pandemic.

With inflation falling faster than previously expected in the UK, this has led to lower interest rate expectations in recent weeks. As a result, mortgage holders are finally starting to see some light at the end of the tunnel. Lenders are cutting their rates to reflect the expectation that the Bank of England won’t increase interest rates from here and may indeed start cutting in the second half of 2024. 5-year fixed rate deals are now available close to 4.5% per year, down from over 6% in September.

After a bright November, which saw gains for both bonds and equities, investors are divided on the prospect of a ‘Santa rally’ this year. While certainly not a given, the concept has become a notable pattern observed in financial markets, with the phenomenon drawing on December being historically a positive month for markets. Some attribute the rally to investors’ optimism as they close their books for the year and make strategic investment decisions. Additionally, the overall festive atmosphere can inject a positive sentiment into the markets.

John Naylor, Chartered FCSI – Head of Investment Committee