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March – May 2024

  • 2023

March to May proved to be a mixed one for investment markets, with varying performance across regions and sectors. The S&P 500 gained +5.28%, going from 3.970 to 4,180 – buoyed largely by the performance of mega-cap tech companies and shown by the fact that the NASDAQ increased +12.92% over the period. Closer to home, however, the FTSE 100 fell -5.46% from 7,876 to 7,446, with the FTSE 250 following suit with a -5.93% drop from 19,903 to 18,723. Looking East, the most notable performance came from Japan’s Nikkei 225 after it rose +12.54% from 27,446 to 30,888 – prompted by the Yen weakening against both the US Dollar and Pound Sterling (therefore making Japanese assets cheaper and more appealing) and the Bank of Japan continuing its relatively loose monetary policy.

The negative performance for the FTSE 100 was mostly driven by the major hit to sentiment caused by a burgeoning banking crisis in March. Silvergate Capital, a cryptocurrency-focused bank, announced its closure and the liquidation of its assets on the 8th of the month. Concurrently, Silicon Valley Bank revealed a requirement to raise $2bn in capital, selling its bond portfolio at a loss – an action which sparked panic, prompting CEO Greg Becker to call for calm and credit agency Moody’s to downgrade the bank’s credit rating, leading to a 60% share price decline. The ensuing panic triggered mass withdrawals, resulting in the bank’s failure and regulatory control by midday on Friday.

Over the same weekend, financial contagion fears heightened as regulators put Signature Bank in New York under receivership due to withdrawal requests. To address concerns and restore confidence, the US Treasury, Federal Reserve, and FDIC issued a letter pledging full compensation for depositors’ losses, an act which helped calm anxieties in the market. Internationally, perennial struggler Credit Suisse was also acquired by UBS with assistance from the Swiss government following years of various challenges. The recent increase in interest rates, which started around 12 months ago, likely contributed to these banking issues. Interest rate adjustments typically take 12-24 months to impact the real economy, requiring central banks to carefully balance curbing inflation without causing significant harm to the economy or impeding growth. Whereas it is perhaps too soon to draw an immediate conclusion, it looks like the initial fears over contagion spreading through markets have been contained – with the largest, most systemically important banks all running much healthier balance sheets and benefitting from more robust capital adequacy requirements.

The period saw some rather significant inflation prints in both the UK and the US, though for differing reasons. The UK finally witnessed inflation under 10% after April’s figure came in at 8.7% – though the reaction from market commentators and participants was uniformly negative, with expectations being it would come in at 8.2%. The core rate, which excludes volatile energy and food prices and is the Bank of England’s preferred measure of inflation, also jumped to 6.8% – the highest since March 1992 and above forecasts of 6.2%. Across the Atlantic, however, the corresponding figure in the US was 4.9% – lower than expectations of 5% and the 10th consecutive fall. With March’s figure also coming in lower than expectations by 0.2% (5% vs 5.2%), markets anticipate, and the Federal Reserve has indicated, that a pause in interest rate at June’s meeting is likely. Such a pause in the short term is a luxury the Bank of England is unlikely to indulge in, with the base rate at the BoE now set at 4.5%, with another increase expected on 22nd June. A string of lower inflation prints is now sorely needed before UK investors can begin to envisage rate reductions.

May also saw the latest in an increasingly long line of crises surrounding the US debt ceiling. On 1st May, Treasury Secretary Janet Yellen stated that the government could run out of money and default on its debt as early as June. Throughout the month, a series of negotiations between President Biden and House Speaker Kevin McCarthy were held to try and find a way forward – with the ramifications potentially extremely dire if none was found (including massive job losses, huge hits to productivity and GDP, as well as a significant downgrade of the US’s credit rating and interest rate increases throughout the world). Fortunately, the impasse was broken on 27th May, with the Fiscal Responsibility Act of 2023 passing through both the House of Representatives and the Senate a few days later – officially suspending the debt limit until January 2025, though capping discretionary spending during fiscal year 2024 and 2025.

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