Quarter 1 – 2024 Market update

I hope that this update finds you well with some warmer and sunnier weather for most of us after what seems to have been never ending rain. 

With any look back over a quarter we will try and pick out some interesting points, so what have we seen in Q1. 

There has been continued strong performance in technology mainly toward Artificial Intelligence (AI) and the recovery in Japan. 

However, this has gone hand in hand with expected interest rate cuts. 

The expected developed market rate cuts of April/May have been moved to June/July, so it seems, and markets have been holding their breath on this “first” cut. 

The 6 rate cuts excepted for 2024 are now 2 at best. What this means is that higher rates will be hanging on for a little time longer. 

The best performing asset sectors so far, this first quarter are Technology with the average return of 11.3%, followed by North America at 9.7% and Japan at 9.3%. 

The flip side of this is Property and Infrastructure both down circa -3%. 

Fixed income and corporate bonds are now looking more attractive seeing as these have a greater ability to lock into higher yields (income/interest). Investors will be in a good place with higher yields for longer and with rate cuts these will increase corporate bond values. 

Semaglutide, a glucagon-like peptide receptor agonist, or GLP-1 analogue will be bigger news as we move forward. This weight loss treatment is grabbing headlines and not just for weight loss. 

What the overall implications of this could have on investment markets is quite unknown, but in a crude way it could see fast food outlets down and fashion retailors up. This would be due to people being able to make massive weight loss by just taking an injection and soon to be a pill. 

Together with AI these areas appear to be the new frontiers and I fear we must all approach these with caution. 

The complications and effects of both are very much in the infancy here and simply looking toward a short term return I feel is misjudged. 

There is no doubt that imbedding AI in most business will improve efficiency and drive down labour costs. There will have to be some limits on how and when this in is implemented to ensure good corporate governance. Whenever I read any creative piece (just like this) I now question if this is in fact AI generated. 

Bank rates will fall, and corporates will have pricing power with lower debt rates and lower production costs. 

This places us in uncharted territory in the goldilocks zone of “not too hot, not to cold but just right” for economic expansion and stability. 

If there was a barometer of investment confidence in the first quarter, we saw a record of £6.97 billion added to equity funds in Q1. 

Of that £5.72bn was added to American equity funds which was more than three times the best previous quarter. More UK investor cash has flowed into North American equity funds in the last 4 months than in the previous nine years combined. 

That is an amazing statistic to see where the money is going. 

The flip side of this, is that UK focused funds saw outflows jump to their highest since February 2023 – now 34 consecutive months of net selling. 

What this telling us is that the UK Market is still seen as small and unloved while the US continues to dominate. 

Circa 70% of developed market equity is the US and circa 64% of world equity markets overall whereas the UK remains circa 4%.  

Looking a little forward with us being a few weeks into Q2, it’s a case of when not if central banks will have to cut rates. 

Will inflation being 3% be more realistic and bank rates being 3.75% the new normal. Time will tell here now but something will have to change sooner than later. 

As always, a well-diversified investor will benefit from a moving market and remaining invested and not a saver will show a difference in returns longer term. 

If you require any additional support or help, please feel free to get in contact directly at any time.