Market Opinion - January 2024

Market Opinion - January 2024

In January, a select group of major US tech companies propelled global stock indices upward, with the MSCI All Country World Index closing the month 1% higher in sterling terms. Key central banks, including the Bank of England (BoE), the Federal Reserve (Fed), and the European Central Bank (ECB), left base rates unchanged in their first monetary policy decisions of 2024, countering market expectations for imminent interest rate cuts.

In the UK, bond yields climbed as inflation increased and economic activity indicators exceeded forecasts. In the US, robust employment and GDP data underscored the country's vital role in global economic growth, with January's non-farm payroll numbers reaching 353k, nearly double the predicted figure and the highest in a year. Despite weaker GDP figures in the UK and Eurozone, their labor markets remained resilient, potentially maintaining inflation at higher levels than preferred by central banks.

The year began similarly to 2023, with a few large-cap US stocks leading equity markets. The so-called Magnificent Seven-Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla-contributed significantly to market returns, although their recent performances varied. Nvidia and Meta saw double-digit returns, Microsoft and Amazon outperformed the broader market, while Alphabet made modest gains, and Apple and Tesla faced declines. The impact of corporate earnings announcements added nuances to these performances, illustrating the diversity within this group of companies.

UK stock indices fell by 1.2% due to concerns about China's economic slowdown and dropping oil prices, while Europe excluding the UK saw a minor increase of 0.4%. Stock indices are currently consolidating, awaiting further economic and interest rate direction.

The Middle East conflict and uncertainty have notably influenced oil and gold markets, with initial reactions leading to an increase in oil prices due to fears of a wider regional conflict. Brent crude prices rose over 6% in January, affected by disruptions in the Straits of Hormuz due to actions by the Houthis, impacting global oil and goods trade. Despite recent pull-backs in oil prices, geopolitical risks remain a concern for global supply chains and inflation.

Gold prices ended January slightly lower, following a record high in December, as market fundamentals outweighed geopolitical tensions. The strong US economic data and the Fed's stance against rate cut expectations are currently more influential on gold prices.

The pound to sterling exchange rate remained relatively stable in January, experiencing slight declines after the release of the US jobs report, moving from near its high range to lower levels, reflecting the market's sensitivity to global economic indicators and policy decisions.