The pivot party kicked off in November when data showed inflation falling much faster than expected, and the Federal Reserve stated unequivocally that rate hikes were over and rate cuts were just around the corner. The pivot party was in full swing -  and equities, listed property, and bonds all surged on the euphoria of falling interest rates in 2024.

It was the end of 2022 and every market commentator and analyst seemed to be planning for the recession they were convinced was coming. Equities and bond yields would all tumble as the fastest interest rate increases in a generation would plunge the world into a recession.  And for a while this scenario seemed to be playing out as the US regional bank crisis and the collapse of Credit Suisse indicated that recession was fast approaching.

But something else was going on - Artificial-intelligence shares were red hot and dragged up chip stocks behind them, while the so-called Magnificent 7 — Tesla, Amazon, Meta, Apple, Alphabet, Nvidia and Microsoft — dominated US equity gains. By the end of September world equity markets were up 17% (in AUD) while the global bond market looked like producing its third negative year in a row. Not what the analysts had been forecasting at all…

But then the last two months of 2023 saw a remarkable shift in sentiment from central bankers. In November data showed U.S. and European inflation falling much faster than expected, and the market now expected a “soft landing” instead of the “hard landing” that seemed certain only a few months earlier. Markets rallied on the view that the “terminal rate” for interest rate increases had been reached and a “pivot” would happen soon.

The Fed triggered fresh market excitement when it used its December meeting to say unequivocally that rate hikes were over. More telling though was the Fed's "dot plot" which suggested three 25 bp cuts in 2024. The pivot party kicked into euphoric mode – markets priced in six quarter-point rate reductions in 2024, twice the three pencilled in by the central bank. Everything from global stocks to corporate bonds surged higher.

The Australian sharemarket spent most of the year in a holding pattern as concerns around where inflation would take interest rates dominated sentiment. By the end of October the market was flat for the year, and the outlook was gloomy. However, with inflation data printing lower than expected, and the Fed pivot, the ASX added a stunning 12% through November and December. Overall, the ASX is up 12.4% for the year – its best return since 2021. Most of that performance came from the last quarter, which returned 8.4%