Investment Update – April 2024

It was another positive month for global equites in March, with the asset class returning 3%. There was good news for investors with assets outside of the US stock market, as gains were led by UK and European equities, with the mining and energy sectors outperforming. US tech stocks actually underperformed the wider US market as the rally started to broaden out.

Bond markets had a relatively quiet month, although UK gilts performed well in response to weaker-than-expected UK inflation data. However, it wasn’t so quiet in commodity markets where gold rose 8%, oil prices rose 6%, industrial metals rose 3% and agricultural prices rose 4%. It was also a good month for listed infrastructure and real estate which returned 5% and 3% respectively.

There was plenty of data to digest over the month, including a strong US jobs report and survey data. However, the US unemployment rate edged up to 3.9%. The major central banks decided to keep interest rates unchanged, but kept the door open to rate cuts beginning in June, but the Swiss National Bank surprised markets by cutting interest rates, the first time it has done so in nine years.

Despite robust US growth and signs that inflation is ‘sticky’, most Fed members feel that it remains appropriate to begin cutting interest rates in June. That would be good news for the Bank of England and the European Central Bank as they seek to avoid currency weakness by moving first. However, inflation is now falling sharply across Europe and the data may force their hands, regardless of the Fed’s actions in June. Political and media pressure is building and for the Bank of England especially, the optics of inflation below 2% and interest rates above 5% are poor.

Commodities struggled last year but with growth forecasts being revised higher, the asset class has enjoyed a strong rally in recent weeks. The sharp rise in oil prices could unsettle bonds and equities in the short term, but a manufacturing upturn could push industrial metals higher, particularly if Chinese economic data shows signs of bottoming out.

Markets have had a fast start to 2024, with most asset classes delivering positive returns. Bonds now offer attractive yields and equity valuations may receive a further boost from lower interest rates. However, with investor sentiment having improved so markedly since the turn of the year, we feel it’s wise to sound a note of caution. Central banks may yet be spooked into delaying rate cuts and rising oil prices are an unwelcome tax on consumers and businesses.