Quarterly Market Updates - March 2024

After the exuberance of the “pivot party” in the last eight weeks of 2023 – when central banks all but confirmed that interest rises were over, and the next moves would be downward – many thought that there could be a retraction in early 2024.But markets have shaken off expectations that interest rate cuts are not coming as quickly as they had priced in at the end of last year and have been steadily climbing throughout the quarter approaching their peaks.

The Australian market touched it’s all time highs through March, building on the momentum that pushed many major global equity benchmarks to fresh records on expectations of a world-wide rate cutting cycle. In the March quarter the S&P/ASX 200 index is up 5.3%, and that’s after the gain of 12.1% between November the 1st and December the 31st last year.

The banks have been the biggest driver, with the Financial Sector (which makes up 30% of the ASX) up 12% for the quarter. However, holding back the market from hitting even higher peaks has been the Materials Sector. This sector (dominated by the big miners)

Outside of Australia, the developed markets have seen exceptionally strong returns. The MSCI World Index is up 13.9% for the quarter and a staggering 28.4% for the previous 12months. Last year the strong global rally in stocks could be put down to a very narrow cohort of large tech stocks – the so-called “Magnificent 7” Nasdaq stocks (Microsoft, Apple, Tesla, Amazon, Nvidia, Alphabet and Meta Platforms). But we are now seeing a broader based rally across markets.

In the US stocks in the S&P500 Index are listed on either the Nasdaq (around 46% by market weight) or the New York Stock Exchange (NYSE). In 2023 the Nasdaq composite index returned a staggering 48% while the NYSE Composite returned a comparatively measly 14% (giving the S&P 500 index an overall return of 28.5% for the year). But this quarter has seen a much more even spread of returns across the two constituent indices, as shown in the chart below.

Furthermore, while the US market is the largest part of the MSCI World Index (making approximately 65% by market cap weight) other major markets have also seen strong returns for the quarter. Europe has returned 10.1% for the quarter and 17.1% for the 12months (in AUD), while Japan – the perennial laggard of global markets – as returned

The Emerging Markets are trailing the Developed Markets, but this is due to the poor performance of China, which makes up around 33% of the MSCI Emerging Market Index. While most major markets have been booming, the MSCI China index has returned 2.3%for the quarter and -14.9% for the prior 12 months.

The strong performance over the last quarter (and 18 months) of markets has been on the back of strong economic data, though there remain (as always) risks to the continuing strength of global markets. Geo-political tensions, latent effects from the rate hiking cycle and currently unknown risks may all play a part in the performance moving forward. The key to successful investing is understanding your objectives, reducing risk through diversification, accepting a level of uncertainty and accessing markets through high quality investments