April 2024 Monthly Market Review

April was challenging for investors. After a stellar start to 2024, the first quarter’s optimism faded and stock market returns were negative on the month for most regions. Overall, global stocks lost 2.4% of their value in sterling terms through April. Capital markets grappled with the fact that growth and inflation do not seem to be dropping away – most notably in the US. That has pros and cons: resilient growth means stronger corporate earnings, but sticky inflation means central banks cannot cut interest rates as soon or by as much as markets had expected. Even with the pullback, though, year-to-date returns are still strong. Since the market through late last October, global stocks are up 36.2% in sterling terms – as the table of returns below shows.

Underlying markets’ first real struggle of the year was a return to volatility. Trading was remarkably calm in the first three months of the year but that all changed in April as intraday trading became spiky. Large US technology companies – international investors’ long time favourite – experienced a substantial 24.8% trading volatility. This meant a heightened perception of market risks, accompanied with some of the standard signals of ‘risk-off’ behaviour. The US dollar, considered a safe-haven currency, gained value in the middle of the month.

The assets which fared worst were those that did best in the early part of the year. We see this in US tech, which lost 3.5% in April in sterling terms and underperformed not only other regions but the broader US stock market – which dropped 3.2% by comparison. But also in Japan, whose equities were the worst performers in April, returning -4%, yet is still one of the year’s best performing regions, up 7.5% in sterling terms year-to-date.

Japanese stocks saw the most volatility, with a 25.3% annualised figure for April. It was not just equities that were volatile either: the value of the yen fell dramatically through April and saw some massive intraday trading ranges. Higher Japanese inflation was offset by weak real economic activity. Investor positivity retreated somewhat, amid fears that expected profit growth may not be forthcoming. At one level, it was helpful that the April central bank meeting brought no change to short-term rates, but a dovish Bank of Japan also sent the yen to 160 against the dollar on Monday 29th – the weakest level in 34 years. Earlier this year, a falling yen was deemed to be a benefit for exporters but now the backdrop of rising input costs is now seen as suppressing domestic demand. The yen reversed sharply higher in later trade after Ministry of Finance intervention, another sign that the yen weakness is now being seen as creating problems.

There were equity markets with positive returns last month; UK, China and emerging markets, jumping 2.7%, 7.1% and 1.3% in sterling terms respectively. This keeps with the theme of changing fortunes, as all three have lagged behind Europe and the US since last October’s trough, though to massively varying degrees. China was by far April’s standout after a weak period. Not only is Beijing pledging ever more economic support, but the latest figures for high-tech manufacturing show it is having a positive impact.

The UK stock market benefitted last month from its large commodity-related companies, in particular BHP’s massive takeover bid for Anglo-American and perhaps also from the Bank of England’s relative dovishness compared to other central banks. The timelines for interest rate cuts are being delayed in the US, but the market thinks that the BoE remains on course to deliver its first cut in late summer. Despite hotter-than-expected inflation figures, Britian’s inflation problem is probably drawing to a close.

Europe’s monthly returns were negative despite perceptions that European Central Bank (ECB) is also fairly dovish. The mild weakness of the Euro, the rise in energy and metals prices, and still tight labour markets caused some Governing  Council members to sound more equivocal about rate cuts. We note there are some signs of returning European growth – and with it, some sticky inflation – but overall inflation looks steady rather than on the rise. The ECB continues to indicate a June cut but may not want to cut rates too quickly thereafter.

This is very different to the US, where growth and inflation numbers continue to show notable strength. As we wrote last week, headline US inflation figures rose in March amid strength in domestic demand. The US economy continues to defy expectations, and milder inflation numbers were only possible because of weaker import prices and businesses drawing down their inventories. The Fed keeps delaying its rate cut timeline in response, but has not yet suggested that another rate rise might be necessary. The longer US strength goes on, the more likely that drastic turnaround becomes.

Nobody thinks rate rises are likely, but markets have certainly had a bit of a reality check. The ‘immaculate disinflation’ narrative – that prices could come down and start a new cycle without hurting growth or company profits – propelled stocks from October until March, but it always looked a little too good to be true. The fact markets are realising this is not a bad thing.

The benefits of this higher growth, higher inflation environment, as markets are also realising, are strong corporate earnings. These are what ultimately give stocks their value, and the recent profit reports for the first quarter of the year have brought plenty of joy – particularly in the US. Market expectations became more realistic last month, but realism does not mean pessimism.





Please note: The value of pensions and investments can fall as well as rise, and you could get back less than you invested.

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