Market Opinion - February 2024

Market Opinion - February 2024

In February, global equity markets saw gains, with emerging markets, particularly Chinese stocks, showing significant improvement. However, the fixed income market experienced a general increase in yields, leading to lower bond prices. Investors anticipated that central banks would delay interest rate reductions.

In the US, the stock market performed well, bolstered by positive corporate earnings reports, especially from some of the leading companies referred to as the "Magnificent Seven." The consumer discretionary and industrials sectors led the gains, while more conservative sectors fell behind. The Federal Reserve maintained interest rates at 5.25-5.5% following its late January meeting, with Chair Jerome Powell suggesting a March rate cut was improbable. Economic data released in February highlighted resilience, making the case for imminent rate cuts less compelling. Employment figures exceeded expectations, and inflation rates showed a slight deceleration, though core inflation remained steady.

Presidential primary elections saw Donald Trump winning several Republican contests. Eurozone stocks also advanced, though they didn't match the US pace, with consumer discretionary, industrials, and information technology leading. Despite hopeful signs for rate cuts, the real estate and utilities sectors did not perform as well. Technological advancements, particularly in AI, fuelled enthusiasm in the tech sector.

Inflation in the Eurozone showed a slight decrease, and business activity indicators improved slightly, although the European Central Bank President Christine Lagarde indicated that rate cuts were not imminent. UK stock markets remained stable, with certain sectors contributing to slight gains amidst economic challenges, including a technical recession in the latter half of 2023. Yet, recent data hinted at economic activity picking up.

Japanese stock markets enjoyed robust gains, with the Nikkei 225 surpassing its historical high. The market was buoyed by strong earnings reports and investor optimism towards Japan's economic prospects, including inflation and corporate governance improvements. Asia excluding Japan also saw growth, with optimism around China's economic recovery contributing to market gains across the region.

Emerging markets outperformed developed markets, buoyed by optimism around potential mid-year interest rate cuts by the Fed. This optimism was particularly strong in Asia due to China's rebound and policy adjustments.

Global bonds experienced a decline as yields increased, reflecting anticipation of future rate cuts amidst strong labour markets and unexpectedly high inflation data. Credit markets, however, outperformed due to a relatively positive economic outlook. Currency markets saw the dollar strengthening against most major currencies, while the performance of convertible bonds lagged behind equities.

In commodities, the S&P GSCI Index saw a slight increase, driven by gains in livestock and energy, though this was offset by losses in agriculture, industrial metals, and precious metals sectors.