January – March 2024

The S&P 500 enjoyed a relatively smooth ride from 4,770 to an all-time high of 5,254, gaining +10.16% in the process. In Europe, the S&P Euro Plus gained +7.97% from 2,370 to 2,559, despite multiple European countries suffering from lacklustre growth. The UK was again a relative laggard in the West, with the FSTE all-share gaining +2.51% from 4,232 to 4,338. However, there was some positivity in March – with the index being one of the month’s best performers after a rise of +4.20%.

With inflation continuing to remain at the forefront of investor’s minds, it is nevertheless reassuring to see that the headline figures for the UK, US, and eurozone have all come down dramatically from the highs seen through 2022 (11.1%, 9.1%, and 10.7% respectively). The UK, in particular, has seen 4 out of its last 5 inflation prints come in cooler than expected, with the latest figure now standing at 3.4% vs 3.5% expected. The Bank of England is also now forecasting multiple prints to come in lower than the 2% target in the second and third quarters before predicting it will jump back up again before the end of the year. In the US, whereas the rate has been consistently lower than 4% since June 2023, it has not fallen beneath 3% – showcasing how difficult it can be to eradicate those final few percentage points. Whereas the US Federal Reserve was expected to be the first major central bank to cut rates, as at the end of March, the chances of a June cut are starting to gradually recede.

In contrast, there is a strong chance the European Central Bank will be the first to cut rates, with inflation having come down markedly and now standing at 2.4% for the 12 months to March 2024. Although a technical recession for the bloc as a whole was narrowly avoided, with Q4 2023 growth coming in flat after a -0.1% contraction in Q3 – many countries are now teetering close to entering one. Germany is undoubtedly the highest profile struggler in the eurozone, with growth -0.3% in Q4 after two successive quarters of flat performance, though France has also posted its own second successive flat quarter of growth. In the UK, the ONS officially announced a recession in February, with growth having contracted for 2 consecutive quarters at the end of 2023 (-0.1% and -0.3% respectively). In response to the news, Andrew Bailey, Governor of the Bank of England, suggested to MPs that there were ‘distinct signs of an upturn’ and remarked that ‘this is the weakest recession by a long way’.

Moving from monetary over to fiscal policy, Jeremy Hunt announced several measures in the UK’s Spring Budget on 6th March aimed at both stimulating the economy and reversing the fortunes of the Conservative Party in opinion polls. The headline policies included a reduction in National Insurance (from 10% to 8%) and the abolishment of non-UK domicile rules. All the main budget announcements were telegraphed widely beforehand – perhaps an indication the party is still extremely wary of repeating October 2022’s haphazard mini-budget during the short-lived tenures of Liz Truss and Kwasi Kwarteng where several unfunded policy announcements riled financial markets.

The new all-time high for Japan’s Nikkei 225 came after the last one was reached on 29th December 1989, at the apex of their asset price bubble. Property and stock market valuations soared to extreme levels, exemplified most acutely by the valuation of Tokyo’s Imperial Palace surpassing California’s entire real estate value. Over the last few years, the Nikkei 225 has been a relative outperformer owing to favourable investing conditions, including modest inflation and ultra-loose monetary policy. However, the Bank of Japan ceased to be the final holdout for negative interest rates in March, after they were raised to 0% from -0.1%, after over 8 years at that level, with policymakers stating that it was the correct time as inflation had exceeded the 2% target for over a year. Furthermore, in an annual process known as ‘Shunto’, where large firms engage in wage discussions with unions, increases of 5.28% were agreed – something that officials hope will serve to ‘embed’ inflation and stop a return to damaging effects of deflation which gripped the country through much of the last three decades.