Q1 2024 Market Commentary

18/04/2024

Global Markets

Note: All quoted equity performance figures are in GBP terms.

Global equity markets enjoyed a positive start to the year, as US corporate earnings were strong and expectations of interest rate cuts remained. The MSCI ACWI index gained 9.4% over the first quarter, with Developed Markets (+10.1%) outperforming Emerging Markets (+4.2%).

The S&P 500 registered another strong quarter, finishing up 11.6% as the US economy and corporate earnings remained strong. Several of the ‘Magnificent Seven’ stocks that drove so much of last year’s market performance again registered significant gains at the start of 2024, although the rally was more widespread than in 2023.

The FTSE 100 saw returns of 4.0% over Q1, with private equity investors taking advantage of cheap UK equities. UK equity valuations, as measured by Price/Earnings, are currently registering as cheap relative to European markets and approaching a record “cheapness” against the US market. Some institutional investors have argued that when using sector neutral analysis (which removes the impact of the different sector weightings in different countries) this is less extreme. However, even then, the UK remains relatively cheap. European stocks also enjoyed a strong start to the year, as inflation continued to show signs of slowing, and moving towards central bank targets.

Japan saw its strong performance continue, with the MSCI Japan index rising by 11.5% over the period. Strong corporate earnings and the end of negative interest rates took the Nikkei index to highs not seen for 34 years.

Emerging Markets lagged Developed Markets over Q1, with China (-1.3%) dragging on returns. However, policy stimulus and stronger economic performance drove a slight rally in China in the second half of the quarter. Positive performance in India and Taiwan helped to drive the broader EM market, with India outperforming ahead of the upcoming election, and Taiwan supported by continued AI enthusiasm and strong chip demand.

Equity Styles

Momentum (+22.1%) was the strongest performing factor over Q1, significantly outperforming global markets, followed by Quality, which was up 11.2%. Both indices currently have a large weighting to many of the Magnificent Seven stocks that have helped to drive strong performance.

Value finished the quarter in positive territory but lagged the broader market, primarily due to a higher weighting to financial stocks as well as not having exposure to some of the more expensive tech names that were the standout performers in markets.

Inflation

Central banks across major markets held steady to start the year, with the Fed, the Bank of England and the ECB all choosing to delay rate cuts until they have seen more evidence that high inflation has been defeated.

US inflation ticked up at the start of the year, with increases in both February and March causing markets to push back their estimates for the first US rate cut until well into the second half of the year.

Stubborn US inflation has raised questions about whether other central banks will cut rates before the Fed. Eurozone inflation is moving closer to target than other markets, with a decline to 2.4% in March causing the ECB to signal that it may begin to cut rates in June. Inflation in the UK continues to fall, with February’s 3.4% figure being the lowest annual increase since 2021. Markets anticipate rate cuts to begin in August or September this year.

Fixed Income

Note: All quoted fixed income performance figures are in GBP-hedged terms.

The first quarter of 2024 was mixed for fixed income assets. Government bond prices across the board fell in Q1 as rate cut expectations being pushed back led to a small increase in yields. It was a more positive story for corporate bonds however, with High Yield (+2.0%) outperforming Investment Grade (+0.1%) bonds over the quarter, with spreads in both indices continuing to tighten.