By Bertel Roslev Rasmussen

Goldilocks returned in November, and with her came high stock and bond returns. Goldilocks refers to the scenario where inflation and interest rates are low - or falling - without the economy getting so bad that it affects corporate earnings. Not too hot and not too cold - just like the story of Goldilocks and the bears.

Throughout 2023, the porridge has been too hot, with high inflation and a historically tight US job market. Sharply rising key interest rates have been the tool to cool the porridge without leading to an outright cold porridge in the form of a recession.

In November, the market was particularly encouraged by the release of the US Consumer Price Index (CPI) for October, which was lower than expected. Headline and core inflation fell to 3.2 per cent (year-on-year) and 4.0 per cent (year-on-year) respectively.

The drop in inflation was not dramatic - inflation was expected to be 3.3%, but among investors it raised hopes that inflation could touch 2% before the end of 2024, and it created expectations that we have now seen the last US interest rate hike - and can look forward to interest rate cuts already in the first half of 2024. It is thought-provoking that it has not been more than a few months since investors expected interest rates to be "higher for longer".

On the growth side, there are signs of moderate cooling in the US economy. The US job market is not quite as hot as it was a few months ago and retail spending fell modestly in October, suggesting that consumers are moderating their spending patterns after a strong run through the middle of the year. It is such moderately cooling signs that the stock market is looking for in its search for a so-called "soft landing".

The return of the Goldilocks scenario was celebrated in the financial markets. On the equity market, global equities rose by 5.7% - the highest monthly return in 2023. On the bond side, there were also nice gains as a result of the fall in interest rates - both for interest-sensitive government and mortgage bonds as well as the more cyclical credit bonds. Only a few months after the pessimism was widespread, investors are once again pulling risky assets off the shelf, as illustrated by the fact that at the time of writing, Bitcoin has generated a return of 153% in 2023. The euphoria is back.