As we make our way toward the warmer summer months, it’s time for us to look back and reflect upon what Q1 taught us, and what we may be able to expect from the stock markets and global economies for the remainder of the year.
Thankfully 2024 started off with a great deal more stability than markets and economies had enjoyed in the previous two years. We’ve hopefully seen our final interest rate hike, inflation is finally coming down, and investors and business analysts alike, are cautiously optimistic that 2024 could be the year that we finally see interest rates begin to drop.
Of course, we’re not out of the woods yet, inflation, though on the decline, is still stubbornly sluggish to fall and is still higher in countries than the U.S and the UK, than governing bodies would like.
So, just how did the markets and key sectors in the global economy perform in the first quarter of 2024, and what might this mean for the remainder of the year? Here’s an overview of the first quarter results for 2024.
Q1 Overview
We’ll start crunching some numbers and will begin looking at stats and figures shortly. Before that however, we’re going to look at a brief overview of Q1 results.
Now, despite murmurs of a potential recession in America, and indeed, businesses and markets feeling the pinch after the FED hiked interest rates 11 consecutive times, the US economy proved incredibly resilient. That, as well as tech stocks enjoying their best rally in years, driven partly by enthusiasm surrounding artificial intelligence (A.I) also helped the economy and markets to flourish.
Bonds in the first quarter fared less impressively, posting negative returns. Ultimately, however, the findings were more promising than experts had initially predicted.
North America
For the first three months of 2024, US shares enjoyed healthy growth.
The S&P 500 for example, enjoyed a boost thanks to impressive corporate earnings. At the forefront of these earnings were the so-called ‘magnificent seven’ (Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia, and Tesla). Here, gains were driven via the financial sectors, communication, I.T, and energy sectors.
Not all US sectors posted impressive rates of growth for Q1 however. Lagging behind was Real Estate, which posted a negative return. Utilities didn’t fare much better and were also down and below market predictions.
As is likely to be the case for much of 2024, inflation and the prospect of rate cuts was also on the agenda. As monetary policy will likely ease as inflation falls, investors were optimistic that interest rates would be cut. When/if that happens, growth in virtually all sectors will likely not be far behind.
Speaking of inflation, in the US it ticked up slightly year-on-year in February, coming in at 2.5% as opposed to 2.4% at the same time the previous month. This caused FED chair Jerome Powel, to reiterate the fact that the FED will exercise great caution when/if they initiate rate cuts later in the year.
Due to the findings, predicted GDP growth for Q4 was revised and increased to a predicted 3.4%.
Slightly more concerning was unemployment data in February, which actually rose. This resulted in yet more concern about the potential for a recession in the U.S, though most market analysts and experts predicted that this wouldn’t come to fruition.
UK
In 2023, the UK economy had been decidedly sluggish. Whereas some investors believed that the UK market was undervalued, there were some who believed that growth had stagnated and that the markets may have actually been overvalued.
Over Q1, UK equities increased and overperformed by a large margin. Energy, financials, and industrial sectors all exceeded expectations. Other more vulnerable sectors also increased.
Because of the promising growth, optimism grew that the Bank of England (BoE) would instigate their first interest rate cut. Despite this however, the BoE’s Monetary Policy Committee (MPC) opted in March to hold interest rates at 5.25%.
Inflation, which had peaked in 2022 at 11.1%, fell sharply, registering 3.4% in February. This however, was still much higher than the BoE’s target of 2%.
Revised figures toward the end of Q1 actually revealed that the UK had technically entered a recession during Q3 and Q4 of 2023. Because of the growth seen in many sectors of the economy, and because of how well the markets had performed, this had little effect on the economy or the markets, who remained fairly stable.
Eurozone
Also in Europe, Eurozone markets also performed well in Q1, with Eurozone shares enjoying strong gains for the first quarter.
Technology sectors, driven by increasing enthusiasm for AI, posted strong gains, as did industrial sectors, consumer discretionary sectors, and financial sectors. Because of these gains, and a more optimized outlook for the economy, slightly more economically vulnerable stocks were also boosted.
Lagging behind however, were once again the Real Estate sectors, as well as utilities and consumer staples.
During Q1, the flash Eurozone PMI (Purchasing Manager’s Index) grew from 42.9 in February, to 49.9 in March. Inflation in the Eurozone also continued to cool, with the annual inflation rate consumer price index (CPI) coming in at 2.6% in February, down from 2.8% the previous month.
Again, some overly enthusiastic investors had hoped that interest rate cuts were imminently on the horizon, though Christine Lagarde, the European Central Bank President, quickly downplayed these rumors and stressed the fact that the bank did not wish to risk undoing the results of previous interest rate hikes.
Emerging Markets
Finally, we have Emerging Markets.
Overall, during Q1, Emerging Market equities enjoyed modest growth, but still underperformed.
Despite China enjoying policy stimulus measures, Emerging Markets in China posted poor results. This, coupled with the FED delaying interest rate cuts in America, meant that markets particularly sensitive to high interest rates such as Brazil, were negatively impacted.
The top performing index market was Peru, partly due to the country’s reference rate falling to 6.5%, along with a reduction of the reserve requirement ratio for local currency deposits.
Korea, Taiwan, Turkey, India, and Colombia also saw positive growth and outperformed.
South Africa and Egypt were amongst the poorest performers, with Egypt registering its worst returns over Q1 on the back of a crushing currency devaluation of c.35%