March 2 0 2 4 • I S S U E 39

March Markets

The end of March marked the end of the first quarter of 2024. Signs of resilience came through in Macroeconomic data from a global point of view. This showed in the equity market with the MSCI ACWI Index posting returns of 7.4% for the quarter. Global Bonds had a tough quarter with the Fed dampening expectations with regards to the level to which rates will be cut this year. The Bloomberg Global Aggregate Bond Index produced negative returns of around 2.15% over the quarter. In terms of commodities, Brent Crude Oil, and Gold have experienced strong gains, up 13.37% and 9.14% respectively year-to-date (YTD).

In the US, the stock market experienced strong gains for both for the month of March and the 1st quarter as a whole. The Dow Jones, NASDAQ, and S&P 500 were up 1.84%, 0.64%, and 2.28% respectively for March. The same indices are up 5.62%, 9.11%, and 10.16% YTD. The market weathered through factors that had the potential to make it decline such as a decrease in the amount of rate cuts estimated for this year and inflation numbers remaining stubbornly higher-than-expected at times. Investors persisting enthusiasm relating to Artificial Intelligence (AI) and the companies expected to benefit from it continued. This was shown as the “Magnificent Seven” posted earnings growth of 56% during the 4th quarter of 2023 and continued to drive the market upwards during the 1st  quarter of 2024.

US Fixed income on the other hand followed the global trend in losing ground during the quarter. The Morningstar US Core Bond Index, a representative index of the US dollar-denominated investment grade bond market, fell 0.8% over the quarter.

The Eurozone followed the general upward trend in equities with the STOXX 600 Index posting gains of 3.03% for March and 7.02% over the first quarter as a whole. Notably, the French CAC 40 Index reached an all-time high during the quarter. In terms of Fixed Income, strong performance in regions such as Italy meant better performance for Europe as compared to the overall global market, with European Sovereign Bonds down just 0.6% during the quarter. Headline inflation came in at 2.6% year-over-year for February, down from 2.8% and edging ever closer to the European Central Bank’s 2% target. Core inflation came in at 3.1%, down from 3.3% previously.

While still producing positive returns the UK equity market lagged behind its developed market counterparts for the first quarter. The FTSE All-Share posted gains of 3.36% for March and 2.51% for the 1st quarter as a whole. Part of the reason for the UK's underperformance was the follow-on from the UK falling into a technical recession, meaning two consecutive quarters of negative Gross Domestic Product (GDP) growth, in the second half of 2023. UK Gilts continued to perform poorly down 1.8% for the quarter. In March, UK Headline inflation came in lower than expected at 3.4% YoY for February, down from 4%. Core inflation also came in lower than expected at 4.5%, down from 5.1%.

China’s economy was robust in the first quarter of 2024. The Bank of China (BOC) forecasts YoY GDP growth of 4.8% for the first quarter just passed and 5.1% for the second quarter. Consumption and manufacturing in the region have accelerated which were contributing factors to the MSCI China Index rebounding 12.3% from its January low. Emerging markets equities as a whole underperformed developed markets, up 2.4% for the quarter.

Overall, investors will be happy with the strong start the markets have experienced so far in 2024. However, it is important that investors maintain well diversified portfolios with more attention turning to valuations as asset prices rise. Investors need to remain focused on positioning themselves well for the longer term and not being swayed by shorter-term moves.

US Federal Reserve: Latest FOMC Meeting – What We’ve Learnt/ Market Response

At the latest Federal Open Market Committee (FOMC) Meeting, the US Federal Reserve (Fed) decided to leave the Federal Funds Rate unchanged for the fifth consecutive meeting. While analysing the news coming out of this meeting, it is important to look at what the Fed expects going forward and if this is in line with what the market expects.

As of its March meeting, it can be said that the Fed still expects three rate cuts this year. However, it has become clear that Fed officials need to see more positive data on inflation before delivering the first cut. The latest inflation numbers in the US came in higher than expected, with year-over-year (YoY) Headline Inflation coming in at 3.2% for February when it was expected to remain unchanged at 3.1%. Core inflation, which excludes the volatile food and energy prices, came in at 3.8% YoY for February, down from 3.9% but still higher than the 3.7% expected. While the US is seemingly at a “sticky” point in terms of bringing inflation down, the Fed will watch the data closely for signs that inflation is getting closer to its 2% target. This is with the hopes of getting the timing right on its first cut and not undoing the work it has done to bring inflation down.

The image below is the Fed’s dot plot as of March 2024. This shows year-end expected medians for the Federal Funds Rate going forward where each dot represents the view of an individual member of the Fed. As is shown, the Fed currently expects a median of 4.6% by the end of 2024.

The market responded positively to the Fed meeting. The S&P 500 topped the $5,200 level for the first time, closing at a new record high and up just under 1% for the day. The Dow Jones and NASDAQ were up 1% and 1.3% respectively for the day. This indicates that the news coming out of the meeting remained in line with market expectations. Market participants will certainly continue to watch for signs of the Fed staying on or deviating off its expected path. The Fed has six further FOMC meetings to come this year, with the next at the end of April/ start of May, followed by meetings in both June and July.

Another factor that is expected to play on the minds of Fed Officials is the US Presidential Election taking place in November this year. Fed Chairman, Jerome Powell, has stated, “We do not consider politics in our decisions and never will.” While it cannot be denied the US Presidential Election cannot simply be ignored, Powell has emphasised that outside noise from the political sphere will not be allowed to impact the Fed’s decision-making concerning monetary policy whatsoever. This is an important stance from the Fed as both Republicans and Democrats will look to leverage the economy to attempt to enhance their respective narratives and appeal to voters.

Going forward, investors, especially those with exposure to the US, will watch the path the Fed takes with its policy decisions closely. Traditionally if the Fed strays from its path this will cause greater volatility in the markets. It is important that long-term investor’s do not become overly responsive to factors that may cause short-term market fluctuations and remain focused on longer-term goals.

Sources

Investing.com

Review of Markets over the first quarter of 2024

13 Charts On the Q1 Stock Rally That Just Wouldn’t Quit

How the US stock market rocketed through the first quarter

Bond Funds Post Mixed Results in 2024’s First Quarter

China’s economy robust in Q1, higher rate expected ahead: Report

Key takeaways from the Fed’s rate decision and Powell’s press conference

Fed still anticipates three cuts this year

March 2024 Fed meeting: Rates hold steady

Stocks surge after Fed indicates three rate cuts still coming this year

The Fed hates politics. Now it’s trying to cut rates in an election year.

March 2024 Fed Dot Plot Sees 2.25-Point Rate Cut by 2026