Market Review – March 2024

The first quarter of 2024 has seen the global equity markets deliver their best opening quarter performance in 5 years (Steer, Clarfelt, Duguid, & Stacey, 2024), with the MSCI World index ending the quarter up 8.85%, turbocharged by the booming interest in artificial intelligence that has seen US equity indexes reach new all-time highs. This quarter has been an extremely encouraging start to the year and comes off the back of an impressive 2023. Investor sentiment has shifted dramatically even as expectations regarding interest rate cuts were scaled back in the face of a slight rebound in inflation.

The ‘Magnificent Seven’ drove a large portion of gains in the US equity markets last year, but this quarter has seen other areas of the market step up and gain momentum as Magnificent Seven constituents Tesla and Apple struggled. The S&P500 increased over 3% in March, while the NASDAQ index was up just under 2%, with both indexes making new all-time highs during the month. European equities recorded a strong month, with the STOXX 600 index climbing 3.65% and the FTSE 100 index up 4.23% in March. Japanese equities were muted in comparison with the Nikkei 225 index up 1.15%, but they remain one of the year’s strongest performers with year-to-date gains of over 20%.

This positive sentiment has spilt over into other asset classes, with the price of gold rising significantly in March, with gold futures surging 8.4% in March, their largest single-month gain since July 2020 (Miao, 2024). Gold is typically viewed as a safe-haven asset that provides the most value to portfolios in times of equity market turbulence. However, the current momentum of the equity markets appears to have spilt over into the commodity. Additionally, this year has seen increasing momentum in the cryptocurrency markets off the back of the SEC approval of Bitcoin ETFs. Bitcoin is up over 55% year-to-date, with Ethereum following closely behind at just under 50% in gains year-to-date. This current surge in asset prices mirrors the bull run of 2021, but investors would be wise to avoid over-confidence and taking on more risk than is suitable, as history shows there will inevitably be a correction on the horizon.

Despite the current market outlook, risks remain present, including inflation, which has been proving to be sticky at current levels. US inflation hit 3% in June 2023 but has struggled to fall any lower and currently stands at 3.2% as of February’s figures. This struggle to bring inflation closer to the 2% long-term target has lowered investor expectations for the number of rate cuts this year, putting further pressure on the economy. There is a similar story in Europe, with inflation failing to fall below the lows of November 2023 and currently standing at 2.6%.

The lack of rate cuts will increase pressure on the global economy, which presents another risk with companies trading at elevated earnings multiples due to the recent surges in the global markets. The S&P500, for example, is now trading at approximately 21 times projected earnings as compared to the five-year average of 19. If the US economy finally shows signs of weakness in the face of higher for longer interest rates, this could impact the ability of firms to deliver on these elevated expectations. This underlines the importance of removing emotions from investment decision-making, as it is easy to get carried away with the positive momentum in the markets and deviate from long-term plans just as the momentum begins to shift.

We are optimistic that the current upward trend in the equity markets will continue, but by implementing a passive and empirically based approach to investing, we remove emotions from the investment process and will not increase risk based on market conditions that could materially change at any moment. We will always value having a clear and consistent plan versus over trying to time the markets, and this means our clients are well positioned for the long-term.

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