March 2024 Monthly Market Review

Springtime for investors; March was another strong one in capital markets. Global stocks gained 3.3% in sterling terms, supported by a strengthening of corporate earnings and a continued softening from central banks. The rally was broad-based too, with virtually all major stock markets getting a fair share of the joy. Last month’s sunny spell caps off an overwhelmingly positive first quarter of the year. Global equities jumped 9.2% over the first three months of 2024 in sterling terms.

The table below shows the monthly and quarterly returns for major regions and asset classes in full, as well as some longer-term annualised return perspectives.

As we wrote last week, one of the key themes of the last month – and indeed Q1 overall – is the drop-off in volatility. Not only has stock market volatility (as measured by the VIX index) come right the way down, but implied or expected option volatility has come down too – though still has some way to go. This tells us that the pricing or expectation of risk has come down and, by the same token, investors’ appetite for risk assets has increased.

Markets have watched inflation come down with glee, hoping that it will mean looser monetary policy despite growth remaining strong. This narrative, labelled “immaculate disinflation”, has been one of the key factors behind the massive rally from last autumn. Since October 27th, global stocks have jumped 20% in sterling terms.

Last month, central bankers finally started reading from the same page, giving more fuel to the rally. The Bank of England and the US Federal Reserve strongly suggested in their March meetings that interest rates would be cut in the summer. The European Central Bank was a little more cautious – not yet declaring inflation slain – but weak economic data and a surprise rate cut by Switzerland have markets convinced the ECB will follow suit.

Thanks to the softer messaging, bond yields came down last month, with the global aggregate bond index gaining 0.9% in sterling terms (bond prices go up when yields go down). This was actually a counter to the Q1 trend overall, as the index was practically flat at -0.1%. Yields rose earlier in the year because markets had gotten ahead of themselves into the year-end with regards to rate cuts. At the height of that strong rally, markets had priced in six rate cuts from the Fed and the ECB, and seven from the BoE – all of which are now closer to three.

It is a testament to how strong market sentiment has been that equities have roared ahead despite flat to negative bond markets. The UK had been lagging behind for most of 2024 but pushed ahead last month to post a 4.8% return for the FTSE 100. Rate cut talk from the BoE and generally brighter economic prospects helped UK stocks become March’s best-performing developed market.

Another big factor behind the FTSE’s recent outperformance was the rally in oil prices – since the UK large cap includes several big energy companies. Brent crude gained 6.4% in March, and oil has quietly risen to a five-month high of nearly $90 per barrel. We discuss oil in a separate article below, but these movements led to a 4.9% sterling gain for the broader commodity index. This was also helped by an impressive 8.7% jump in gold prices, as looser monetary policy is driving holders of liquidity to cash alternatives again.

Europe also defied expectations, jumping 3.7% through March in sterling terms. Even with weak economic data and the ECB giving little away, European equity has been climbing for five months straight, driven by the continent’s 11 biggest growth stocks: GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi.

China was on the lower end of the spectrum, gaining just 0.8% in sterling terms through March and finishing Q1 -1.5% down. But this hides a noticeable rally into the end of the month, as investors began to get excited about long awaited growth in the world’s second-largest economy. Not only is Beijing coming through with significant policy support, but business sentiment surveys now show it is having an impact. Chinese equity has been middling for most of this year and was poor for most of the last. Finally, though, this underperformance seems to be ending.

If China does turn strong again, that has big implications for the “immaculate disinflation” narrative. Global disinflation was in part a consequence of weak Chinese demand and overproduction driving down the price of consumer goods. If we expect stronger Chinese demand and private sector pricing power – as the latest sentiment surveys indicate – then we should also expect inflationary pressure to return, or at least an end to disinflation.

This is the most uncomfortable part of the markets’ overwhelming optimism: there is a limit to how far it can go. Markets are racing ahead on the belief that risks are low and growth will be strong, but thinking risks are low does not necessarily mean they are. With equities already so strong, this makes valuations vulnerable. Any shocks – even small ones – could knock market sentiment. Any disappointment in earnings or, worse, global inflation shocks, could lead to a stock market reversal. Markets are currently completely unphased. Let’s hope their expectations are not too good to be true.


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


Important Information

The text is taken from The Tatton Weekly and is provided by Tatton Investment Management. The information in this document does not constitute investment advice or a recommendation for any product and investment decisions should not be made on the basis of it.

Tatton is a trading style of Tatton Investment Management Limited, which is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 733471. Tatton Investment Management Limited is registered in England and Wales No. 08219008. Registered address: Paradigm House, Brooke Court, Wilmslow, Cheshire, SK9 3ND.


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