Q1 2024 Investment Update

The first quarter continued the positive momentum that we saw at the end of 2023.

Economic forecasters once again demonstrated the foibles of extrapolation, expecting the pace of decline in inflation to be continued into 2024. Accordingly, we started the year with many forecasters expecting significant interest rate cuts in most developed economies. The reality was that the pace of decline in the inflation rate has moderated. Along with that the expectations for the pace and scale of interest rate cuts in the US, UK and Euro zone has been pushed further out into the future.

Normally we would expect this change in expectations to be a negative for both equity and bond markets. In reality the change in view has been received with barely a ripple. This is because we have now had the opportunity to digest the end 2023 earnings announcements from companies and reconsider the prospects for 2024. On balance the prospect for corporate profitability in 2024 looks OK as does the prospect for economic growth in most major markets.

A lot has been written about the so called Magnificent Seven stocks – Apple, Alphabet (formerly Google), Amazon, Meta (formerly Facebook), Nvidia, Tesla and Microsoft which dominated market returns last year. We are pleased to see that the performance dispersion between these stocks has increased this year, reflecting the changing fundamental outlook between these companies and reaffirming that earnings and valuations do matter.

Whilst global events seem particularly momentous we as humans tend to over emphasise recent news when making judgements yet the oil price has remained rangebound and equity market volatility has been and remains statistically low. In fact, we could use the “not too hot not too cold” goldilocks metaphor except that it is so overused we will avoid it! Undoubtedly there will be surprises, but the outlook in the near term remains relatively benign for markets.