• April 5th, 2024
• By Midsilver Investment Limited

Positive economic indicators ignited a springtime mood among investors in the first quarter of 2024. The United States saw its economy grow more than anticipated in the last quarter of 2023. Meanwhile, strong survey results from the Purchasing Managers' Index (PMI) indicated ongoing expansion, lifting the spirits of investors. Globally, macroeconomic figures also hinted at promising developments, bolstering the chances of a gradual economic slowdown rather than a sharp decline.

Amid these developments, worldwide stock markets experienced notable gains, with the MSCI ACWI index climbing 7.4% in the first quarter. The VIX Index, which tracks stock market volatility, showed a relatively calm period, averaging around 14 during this time.

However, it wasn't all smooth sailing, especially for bond investors. Persistent inflation, sustained economic strength, and a slight shift from the Federal Reserve's previously mild stance led to a downturn in bond returns. Market expectations for U.S. interest rate reductions in 2024 shifted dramatically, moving from six to seven anticipated cuts at 2023's end to a maximum of three expected cuts starting in the summer. This adjustment aligns closely with the Federal Reserve's latest projections. Consequently, the yield on the Bloomberg Global Aggregate Index rose by 28 basis points over the quarter, resulting in a -2.1% return.

Interest rate-sensitive assets, like real estate, also felt the pinch of rising rates, with the Global REITs Index dropping by 1.5% by the quarter's end.

In the commodities sector, the broad Bloomberg Commodity Index ticked up by 2.2%, as declining gas prices were more than compensated for by rising oil prices due to continued supply cuts and geopolitical unrest.

Growth stocks led developed market equities to a robust first quarter. The U.S. market, in particular, shone brightly, with the S&P 500 index up by 10.6%, largely thanks to the impressive performance of seven major stocks which enjoyed a 56% earnings surge in the fourth quarter of 2023. This boost contributed to an overall index earnings growth of 8%.

Japan stood out as the top performer for the quarter, with the Topix index surging by 18.1% in the first three months, even as the Bank of Japan started to normalize its monetary policy in March, signaling an end to its negative interest rate policy among other measures.

European stocks saw mixed results; while some indexes like the French CAC 40 reached new highs, the overall performance in Europe was less robust compared to the U.S. and Japan, with the MSCI Europe ex-UK Index gaining 9.7%. However, Europe ended the quarter on a high note as global investors began to see the region as more appealing due to its lower valuations and the potential for narrowing the economic growth gap with the U.S.

Emerging market equities didn't fare as well as their developed counterparts, with the MSCI EM Index returning just 2.4%. Concerns over China's economic future, in the absence of significant fiscal stimulus, weighed on investors. Nevertheless, the MSCI China Index managed to recover 12.3% from its January nadir, buoyed by improved economic data during the Lunar New Year and some policy easing by the People's Bank of China.

UK equities trailed behind most international markets, with the FTSE All-Share index rising a modest 3.6% since the year's start. The UK's underperformance can be attributed to its market's value bias and the economy slipping into a technical recession in the latter half of 2023.

The fixed income landscape saw the Bloomberg Global Aggregate Index decline by 2.1% in the last quarter, as yields rose due to unexpectedly high U.S. inflation figures in January and February. In Europe, higher-yielding nations like Italy performed better than Germany, aiding European sovereign bonds in outperforming U.S. Treasuries. UK Gilts lagged behind, impacted by persistently high service inflation and wage growth, which led the Bank of England to maintain a cautious outlook.