A mixed start to the year for markets
• The recent recovery for bond markets stuttered during January. US equities continued to outperform.
• US produces unexpectedly strong GDP growth of 3.3% during Q4.
• The US and UK launched air strikes against Iran-backed Houthi rebels in Yemen.
• UK Prime Minister Rishi Sunak indicated that the UK may hold a general election in the second half of 2024.
• UK house prices rose by 0.7% from December to January, according to figures from Nationwide.
• A US judge struck down a $56bn pay deal agreed with Tesla CEO Elon Musk in 2018, saying it was unfair to shareholders.
• Tesla's share price fell 10% on the day following the release of weak Q4 earnings.
• A jury in New York awards E. Jean Carroll an $83.3 million defamation judgment against former President of the United States Donald Trump, who does win the New Hampshire Republican primary in his bid to become President again.
After a strong end of 2023 for most asset classes, returns were more mixed in January. US equities continued to outperform, led by their large technology stocks. However, it is increasingly starting to look as though the so-called ‘Magnificent Seven’ of highly performing technology companies has become six, with the share price of electric carmaker Tesla falling sharply after they reported earnings and revenue that badly missed expectations and warned of “notably lower” sales in 2024 than previously forecasted.
Fixed income markets struggled as strong growth and employment data, together with a push back on dovish comments from some central bankers caused markets to pare expectations for rate cuts in the first half of the year.
The US Federal Reserve announced that interest rates would remain unchanged during the month. Even more so than normal, investors scrutinised every word of chairman Jerome Powell's press conference for clues on the path of interest rates over the course of 2024. Powell continued to push back on an early March rate cut, whilst continuing to acknowledge that interest rates had likely peaked and are set to fall later in the year. His comments reflect the continued softer inflation data that suggests a slowdown in the world's most important economy. For the time being, the US economy overall continues to display resilience, marked by a surprise GDP print of 3.3% annualised for the fourth quarter, which was significantly above consensus expectations. US consumer confidence also rose in January to reach its highest level since the end of 2021.
It is also important to highlight that the Federal Reserve will have one eye on the downward trend in global liquidity, which could have a significant impact on the capital position of America's small and mid-sized banks. We are watching this keenly as well.
The European Central Bank also chose to keep interest rates unchanged during the month. In the UK, consumer inflation unexpectedly rose slightly in December and still elevated wage growth caused bond prices to fall, as the market moved to reduce the odds of a rate cut by the Bank of England in the near term. The yield on 10-year UK government bonds jumped from 3.5% to 3.8%
Companies began reporting their fourth-quarter earnings in January. Danish pharmaceutical company Novo Nordisk, which is now the largest listed European company, reported sales and profit that beat expectations amid continuing demand for its weight-loss drug Wegovy. Microsoft reported extremely solid numbers, but they were only in line with analysts' lofty projections and so the stock fell modestly after its results. Alphabet (the parent company of Google) reported a slowdown in advertisement revenue which triggered an aggressive sell off, with the stock declining 7.5% in one day.
The best performing major equity market in January was Japan, continuing the strong performance seen last year. China’s stock market continued to struggle despite the People’s Bank of China announcing a number of stimulus measures. Investors instead focussed on disappointing retail sales. There was also further deterioration in housing activity and the High Court of Hong Kong ordered Evergrande Group into liquidation after the real estate developer failed to restructure a debt amount in excess of US$300 billion.
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