Markets have a spring in their step
Equity markets enjoyed a strong month, with participation broadening out. The S&P 500 ended the first quarter up 10%, its best start to the year since 2019.
Gold reaches a new all time high. Cocoa prices rise sharply.
US Federal Reserve Chairman Jerome Powell reiterates that the bank expects to cut interest rates by 0.75% before the end of 2024.
The UK chancellor Jeremy Hunt delivered his Spring Budget, with the announcement including a 2p cut to National Insurance.
The Baltimore bridge collapses. US carmakers and insurance companies are set to face lower sales and higher costs.
Nationwide Building Society agreed to purchase Virgin Money for £2.9bn. It is set to become the second-largest provider of mortgages and savings accounts in the UK.
UK pub group JD Wetherspoon posted an eightfold increase in profits.
The EU competition authority slapped a €1.8bn fine on tech giant Apple for stifling competition from rival music streaming services.
Investors remained in bullish mood during March, pushing equity markets higher. The rally has broadened out and is no longer being driven by the so-called ‘Magnificent Seven’ US technology stocks. Notably, Tesla and Apple declined sharply again this month. Undervalued stocks generally outperformed those with high earnings growth expectations.
Reasons for market participants to be optimistic during the month include inflation continuing to retreat and persistent economic growth in the US. US Federal Reserve chair Jay Powell said that the central bank is “not far” from cutting interest rates and easing monetary policy. Toward the end of the month, the Fed chose to keep interest rates unchanged. This move was widely anticipated by markets, but it was the comments made by policy makers following the meeting that caused markets to move higher. Their statements indicated a continued expectation from the Fed to lower interest rates by three-quarters of a point over the year, propelling the US equity markets higher. These developments suggest that despite recent mixed economic data, including hotter readings on inflation over the past two months, the Fed is positioning itself to commence rate cuts soon, with Wall Street betting that the first-rate cut will come in the summer.
A day later, the Bank of England made the decision to keep rates at 5.25%, in line with market expectations. This decision saw two of the Bank's previously staunch advocates for rate hikes retract their support, siding with the majority to keep rates steady, with one member voting for an immediate cut. This decision came after the release of UK inflation data on Wednesday which showed inflation has fallen more than forecasted to 3.4%, the lowest since 2021. Governor Andrew Bailey commented that while we are not quite at the point to cut rates, inflation is moving in the right direction, signaling that the Bank is inching towards easing borrowing costs. Echoing trends in the US, market forecasts continue to incorporate three quarter-point rate cuts throughout 2024, with expectations for the initial reduction to occur in the summer. The European Central Bank also kept rates unchanged during the month and lowered their inflation forecast. The Swiss National Bank unexpectedly cut interest rates by 25 basis points to 1.5%, as inflation fell to 1.2% in February.
The Bank of Japan bucked the trend and raised interest rates, for the first time in 17 years. This ended the world’s only remaining negative rates regime. This major shift signals a return to traditional monetary strategies and demonstrates a renewed confidence in Japan's path to recovery from years of deflation and economic stagnation. In addition to this, the BoJ announced several other monetary policy adjustments aimed to stimulate the economy by encouraging spending and investment, while also keeping inflation in check.
Global government bond yields were relatively stable during the month with UK gilts outperforming, as the yield on the 10-year UK bond fell to 3.9%. As a reminder, falling bond yields indicate a rise in bond prices and a capital gain.
Elsewhere, commodity prices were broadly strong. Cocoa prices rose above $10,000 per tonne for the first time, more than doubling in two months, due to poor harvests in Africa. The price of gold and crude oil also continued to climb higher, with the former exceeding $2,200 per troy ounce for the first time.
During March, Chancellor Jeremy Hunt announced his Spring Budget. The centrepiece of the Chancellor’s speech was the announcement of a 2% cut to National Insurance, ignoring calls from some Conservative MPs to slash income tax instead. Hunt went on to state that this cut, combined with that announced last November, will benefit the average worker by around £900 a year.
Fears that the reduction of National Insurance could increase consumer spending and potentially fuel inflation, leading to interest rates staying higher for longer, were laid to rest early in the Chancellor's speech. He insisted that the Tory party, under Rishi Sunak, is successfully bringing down inflation. To support these claims, he referenced reports from the Office for Budget Responsibility (OBR), stating that inflation is expected to fall below the 2% target within the next two months—nearly a whole year earlier than previously forecasted at the Autumn statement last November. The Chancellor went on to announce a freeze on fuel duties for a further 12 months, a move likely to further help ease UK headline inflation.
In general, we have enjoyed a good start to the year. For now, we retain a conservative stance in our portfolios as our expectations that growth stocks will underperform have started to play out.
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