December – February 2024

The December to February 2024 period showcased a robust performance in the global markets, with most indices achieving positive returns. The S&P 500 was a standout, surging +11.57% with multiple all-time highs notched along the way. In the UK, the FTSE 100 saw modest gains of +2.36, whilst the smaller FTSE 250 enjoyed a +4.50% rally. In Europe, the S&P Euro Plus also benefited from gaining +8.45%, contributing to the positive sentiment observed across major markets. This was predominantly driven by continued disinflation and economic resilience across the West – most significantly in the US.

In Japan, the Nikkei 225 also shined, climbing +16.96% from 33,487 to 39,166, in the process eclipsing the previous record of 38,915.87 set back on 29th December 1989. In doing so, the index finally banished some of the demons of the asset price bubble of the 1980s – where growth in property and stock markets grew so extreme that at its peak, Tokyo’s Imperial Palace was valued more than all the real estate in California. When the bubble burst in 1990, the ensuing economic shock caused property prices to plummet and the stock market to crash dramatically. Over the past few months, the Nikkei has experienced significant appreciation, fuelled by favourable conditions that are particularly attractive to equity investors – namely that of accommodative monetary policy and modest inflation.

These factors notably stand in stark contrast with the economic hand Western nations have recently dealt with as the US and European markets have grappled with the spectre of inflation for much of the last two years. From a peak of 11.1% in October 2022, UK CPI is now down to 4% for the 12 months to January 2024 (lower than the 4.2% expected). November’s figure (released in December) was particularly encouraging, and saw the figure fall to 3.9% against expectations of 4.4% – with this prompting the FTSE 250 to rise +1.62% on the back of the news, and 5-year interest rate swaps (used as the basis by mortgage providers to underwrite fixed-term mortgages) to fall on the day.

Whereas there were less expectation-smashing surprises in the US, their CPI is now at a much more manageable level of 3.1% than it was even just a few months ago and has, ultimately, enabled US Federal Reserve Chair Jerome Powell to change his rhetoric surrounding interest rates from one where rates will remain ‘higher for longer’, to one suggesting ‘rate cuts in 2024’.

One of the more headline-grabbing announcements in February came from the Office for National Statistics, who stated that UK GDP growth for the final quarter of 2023 came in at -0.3%, a fact which means the country is now suffering from a recession, albeit a relatively mild one. In response to the news, Bank of England Chair Andrew Bailey suggested to MPs that the economy may have, in fact, already exited recession, that there were now ‘distinct signs of an upturn’ – and additionally highlighting that ‘this is the weakest recession by a long way’.

As can seem contradictory with markets – the FTSE All-Share actually rose +1.75% through to the end of the week it was announced (Thursday 15th February) as markets considered the possibility of the Bank of England cutting rates to support the economy. Conversely, the positive news of a low unemployment rate (3.8% vs 4% expected), also released in February, caused the index to fall -0.89%, as the image it portrayed of a more robust economy made it less likely rate cuts would occur.

Another intriguing feature of the period has been the Q4 earnings announcements for the mega-cap tech-focused companies – with the big winners undoubtedly Meta and Nvidia, with the former seeing their share price soaring +20.32% the day after the announcement. In it, they saw their revenue jump 25% for the quarter and expenses decrease 8% year-on-year. The big reveal, however, came in the form of the implementation of a dividend at 50 cents a share. Whereas not a significant yield for investors (current share price is around $500) – a dividend opens the share up to new investors and is a tangible sign of financial health in a company. Nvidia also smashed expectations – beating their earnings per share estimates by +11.21% and overall revenue by +7.18%. They also saw revenue for their strategically important data-centre business quadruple to $18.4bn.