Market Insight – March 2024 overview
March signalled the end of the first quarter of 2024 and unlike the fourth quarter of last year, we saw growth and defensive assets move in opposite directions.
Equity markets were lifted by economic data which suggests a hard landing to the global economy can be avoided. Bonds, however, were impacted by the Federal Reserve backtracking on the speed of interest rate cuts this year, following inflation remaining above the 2% target of major central banks.
Over the quarter, the US economy was supported by positive Purchasing Managers’ Index (PMI) data. The PMI reading is seen as a leading indicator of economic activity, and the latest data sets meant the World’s largest economy remains in expansionary territory, helping growth asset returns.
At the end of March, key central banks unveiled their final interest rate decisions for Q1. Given the inflation numbers so far this year, it was no surprise that the Federal Reserve, the European Central Bank, and the Bank of England, all held rates steady in this final meeting.
However, for the first time in 17 years, Japan raised its interest rates to 0-0.1% from -0.1%, marking the end of its policy of negative interest rates, which has been in place since 2016 to stop deflation.
Growth Assets – March 2024
Equities had a positive start in Q1, driven largely by US stocks hitting historic highs and a significant portion of returns came from the “Magnificent Seven” technology stocks after they posted earnings growth of 56% during Q4 2023. These seven companies now represent a substantial weighting of the major US stock market, but their premium valuation is leading to some caution as we enter Q2.
In comparison to US growth assets, UK equities lagged most of their international peers rising only modestly over the quarter, given the poor performance of the UK economy and the bias to value stocks which have underperformed relative to growth stocks so far this year.
However, UK equities have a large degree of pessimism baked into their valuations, but they are likely to benefit once interest rates start to decline.
Factor Performance
The Momentum, Growth and Quality factors were the stand-out performers over Q1. Momentum had the highest return, driven by the advancement in Artificial Intelligence (AI), whist Quality performed well as stocks with robust cash generation and financial stability traded higher.
In comparison, Value and Small-Cap were the relative under-performers over the quarter but posted positive returns given the ‘Risk -On’ view in Q1 and were the best performers through March.
Defensive Assets
Both the 10-year US and UK Treasury yields increased over Q1 as financial markets started to push back the timing of interest rate cuts in major economies, and were concerned on a resumption of a ‘higher for longer’ interest rate policy from central banks, particularly the Bank of England.
March 2024 market summary
In summary, it was a good start to the year for growth asset investors, less so for defensive assets. Concerns continue surrounding the concentration of where these large-cap growth gains are generated and their underlying valuations.
Whilst the US economy’s expansion and some broader signs of resilience in the global economy will help growth asset sentiment, maintaining a well-diversified portfolio is more important than ever. We maintain our view that a broad, balanced portfolio, including bonds is key to navigating the next quarter for financial markets.
If you would like professional advice on your investments, please don’t hesitate to get in touch.
