The year 2023 was a crucial one for the global financial markets. The post COVID recovery led to one of the fastest and most aggressive interest rate tightening cycles in history, which impacted deal making across the broader market.
Nonetheless, the much-feared US recession did not occur in Q4’23 as labour markets held steady and inflation decreased. Instead of the much-feared slowdown in growth, an elusive "soft landing" for the economy may be on the horizon, with inflation returning to the Fed's target range and a strong labour market maintaining high levels of discretionary income for workers. These elements played their part in driving the strong stock performance that persisted throughout the year.
Federal Reserve's signal that the two years of rising interest rates would probably come to an end, strong economic growth data, an easing of inflation as many supply chain issues healed, and a surge in excitement about the potential applications of artificial intelligence (AI) in the future were the other key positive developments during the year.
These positive developments helped to somewhat counteract the global decline in M&A activity, which was at its lowest point in a decade. Boardroom appetite for M&As was impacted by high cost of capital and economic uncertainties in H1'23. Recent investor feedback suggests that we may have weathered the worst of it, though. Decelerating inflation and anticipated interest rate decreases are projected to support financial markets. However, because of ongoing geopolitical and economical challenges, it is still unclear precisely when and how robust the rebound will be.
