Market insight 2024 – January overview
In our market insight 2024 January overview, we see that financial markets had a mixed start to 2024 after the strong finish to last year.
On the one hand, certain pockets of growth assets were lifted by data which supported the ‘soft landing’ economic view. However, some central banks’ rhetoric on the timing of rate cuts also proved a headwind for defensive assets.
Following last’s year success, it was Japanese equity markets that led returns once again this month. Commodities also performed well on the back of hostilities in the Middle East and around the Suez Canal.
Starting with economic overview, a number of data releases over the month confirmed the resilience of the US economy, which is still the key driver for the global economy. This included a fourth quarter 2023 GDP figure that was ahead of expectations at 3.3%, and a strong jobs report for December. This report showed 216,000 jobs were added to the economy, alongside firmer wage growth and unemployment remaining at a steady 3.7%. This news initially lifted US markets, but the US Federal Reserve meeting at the end of January suggested a near term cut in interest rates is now unlikely and impacted growth asset sentiment as the month closed.
Turning to growth assets, in the US, major indices was driven to record highs in early January as confidence around a ‘soft landing’ scenario continued the rally in the ‘Magnificent Seven’ technology stocks, but concerns over their valuation remain.
In the UK, growth assets paused on the back of mixed economic data and continued concerns over a slowdown in the domestic economy.
In Europe, markets made positive headway as The European Central Bank (ECB) kept rates on hold at its January meeting.
China impacted the wider Emerging Markets picture, as the domestic economy continued to struggle despite fourth quarter 2023 GDP numbers showing a 5.2% year-on-year growth – which was in line with expectations. However, disappointing news on economic stimulus, housing and retail sales hit market returns.
Factor performance and defensive assets
Turning to factor performance, it was the momentum factor that was the best performer over January, with Small Cap the relative detractor. ESG portfolios found progress more difficult, as the growth factor made only modest headway this month.
Turning to defensive assets, major government debt gave back some of last year’s returns, as financial markets scaled back both the speed and number of rate reductions in 2024. Global government bonds were down 1.8% over the month, but it was UK Gilts that really languished, as wage growth and inflation concerns made the prospect of near-term rate cuts from the Bank of England (BoE) look less likely.
Market insight summary
In summary, we see a continued defensive positioning in portfolios in the near term. That reflects what is seen as an optimistic scenario priced into markets versus concerns over the elevated risk of recession and further disinflation. Given this uncertain start to 2024 therefore, maintaining a balanced portfolio of assets remains key to navigate the first quarter of 2024.
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