March '24 Market Report

In February and March, global stock markets saw a significant upturn, driven by US stocks, which led the MSCI AC World index to achieve a robust 5.2% monthly gain. The momentum behind the market's rise has subtly shifted towards expectations of economic vigor, bolstered by strong job markets and the promising prospects of Artificial Intelligence (AI), while the anticipation for cuts in interest rates has diminished.

Inflation rates remained largely stable, with the UK's consumer price index (CPI) reporting a 4% increase year-over-year, consistent with the previous month and slightly above December's 3.9%. In contrast, the Eurozone's inflation dropped to the lowest point in the current cycle. Despite a smaller-than-anticipated decrease in the US CPI, the US core personal consumption expenditures price index, a key measure for the Federal Reserve, matched the expected 2.8% annual increase.

The persistent inflation rates above the targets set by central banks, combined with robust employment data, have led to a reassessment of interest rate cuts predictions. Initially, there were optimistic projections for significant reductions in central bank base rates in 2024, but these have since been adjusted. The futures market now anticipates four 25-basis-point cuts in the Federal Reserve's funds rate by the end of the year, a decrease from the seven previously forecasted, with the initial adjustment expected in June.

Updates on monetary policy from the Federal Reserve, the Bank of England, and the European Central Bank are highly anticipated in the upcoming weeks. While no changes are forecasted for their March meetings, investors will be keenly observing for any indications of potential rate movements in early summer.

Economic indicators, especially employment data, will remain critical. A marked deterioration in job figures could compel central banks to abandon their current cautious approach. Having responded too slowly to inflation initially, there's concern they might prematurely assume success before fully containing inflation.

The geopolitical landscape continues to be fraught with uncertainty, with implications for financial markets. A recent surge in oil prices to the highest level since November could reignite inflationary concerns if the trend continues.

US stocks outshined global benchmarks in February, led by major technology firms. Nvidia, in particular, reported an impressive 265% surge in quarterly revenues, significantly boosting its future sales outlook. This resulted in an unprecedented daily increase in market value, propelling Nvidia's valuation over $2 trillion, ranking it behind only Apple and Microsoft in market capitalization. This event not only impacted US markets but also had a positive effect globally, underscoring the influence of major tech companies.

Despite the overall market rally since October, UK stocks have not kept pace with their US and European counterparts, hindered by a heavier concentration of value stocks and less favored sectors, as well as concerns over China's economy.

While the outlook for stocks remains optimistic, the recent run-up in prices warrants caution. Valuation and market sentiment are approaching the high end of historical ranges, with numerous potential risks looming, including the possibility of central banks maintaining tight monetary policy, a resurgence of inflation, and political instability.

Oil prices have drawn increased attention, rising to four-month highs. This is partly due to extended production cuts by OPEC+ members, led by Saudi Arabia, which aims to bolster the market.

Gold prices remained steady in February but saw a significant increase in March, nearing record highs achieved in early December.

The British pound has experienced an unusually stable exchange rate against the US dollar in 2024, with February marking one of the narrowest monthly fluctuations in over three years. Similar monetary policies and economic trajectories between the UK and the US have kept the exchange rate within a tight 1.25-1.28 range.