Q1 2024 Global Markets Recap
Highlights‍
- The US stock market has delivered its most robust performance for the first quarter since 2019
- The Federal Reserve maintained its current interest rates, will we see changes in June?
- Bitcoin ETFs hit a new all-time high
US Markets
The first quarter ended with all major US indexes posting positive returns. Currently, the S&P 500 and Nasdaq are outperforming, whereas US Small Caps and US Large Caps are trailing behind.
Following significant gains across all constituents of the "Magnificent 7" in 2023, there appears to be a divergence in performance after Q1 of 2024. Apple (AAPL) has experienced a decline of 10.82%, partly attributed to diminished iPhone demand from China and pending regulatory antitrust litigation from the Justice Department. Tesla (TSLA) has seen a drop of 29.25% amid further weakening demand in 2024, despite the company's efforts to stimulate demand by lowering prices. Despite the underperformance of AAPL and TSLA, the Magnificent Seven still contributed to 37% of the S&P 500's first-quarter gain.
As of the end of Q1, sector performance has diversified compared to our January market review. While the Communications, Technology, and Healthcare sectors maintain their lead, other sectors have experienced a rebound. Real Estate remains a laggard due to persistently elevated capital costs and stricter lending criteria from both national and regional banks. The Mortgage Bankers Association (MBA) reports a decline in commercial mortgage originations across all major property types and capital sources during FY 2023.
In Q1, factor returns remained relatively stable, with Momentum, Quality, and Growth continuing to outperform other factors—a continuation of trends. Notably, all factors have yielded positive returns for the year thus far. Dividends, in particular, have seen a notable increase of 7.09%, a stark improvement compared to the 0.40% decline observed at the end of January.
‍US Economy
In Q4 2023, real GDP surpassed market expectations, registering a growth of 3.4% compared to the anticipated 3.2%. The recent update from the Bureau of Economic Analysis primarily reflected heightened consumer spending and nonresidential fixed investment, albeit partially offset by a decline in private inventory investment.
Job vacancies have returned to a more normalized level after reaching a peak in Q1 of 2022, yet they remain higher than historical averages. Meanwhile, layoffs remain at historically low levels as companies focus on retaining their existing workforce amid enduring structural supply constraints.
Ahead of the next FOMC meeting scheduled for May, the likelihood of a rate cut stands at 4.3%. However, probabilities rise for rate cuts in the subsequent June and July meetings. Nonetheless, robust employment figures may afford the Fed additional leeway before committing to rate reductions.
Global Markets
As Q1 concludes, Taiwan emerges as a frontrunner in the global markets. Notably, Taiwan Semiconductor Manufacturing (TSM), the largest index-weighted holding, surged by 31.34% during this period. Beyond China and Brazil, global equities have exhibited robust performance in Q1.
Fixed Income Markets
The fixed income markets continue to confront the dual challenges of an unexpectedly robust economy and anticipations of forthcoming rate cuts later in the year. Notably, the negative spreads between 10-year and 2-year yields, as well as between 10-year and 3-month yields. Historically, such negative spreads have been interpreted as harbingers of impending recessionary periods. The 10-year to 2-year spread has remained negative since April 1st, 2022, while the 10-year to 3-month spread has been in negative territory since October 18th, 2022.
During Q1, the long end of the yield curve has exhibited flattening tendencies, fueled by market expectations of monetary policy easing. Bonds with longer dated maturities typically experience more significant price increases when interest rates are cut compared to bonds with shorter dated maturities.
Global bond yields moved in parallel with those of the US, reflecting the anticipation in markets for central bank interventions that will furnish a definitive trajectory for both yields and the fixed income markets.
While fixed income markets maintained relative tranquility in Q1, several factors still loom that could induce volatility and uncertainty, including a resurgence in inflation, persistent or escalating international conflicts, and potential missteps by policymakers in managing the delicate balance between growth and inflation.
Alternative Assets
- Bitcoin maintains its upward trajectory in 2024, soaring by over 57.81% year-to-date, hitting a new all-time high. The cumulative inflow for Bitcoin Spot ETFs has surpassed $11.4 billion.Â
- Gold - Central Banks worldwide have continued consistently buying gold to diversify their reserves and hedge against geopolitical tensions, which has been an added support for Gold prices.
- For the first time in history Cocoa futures have hit $10,000 per tonne which makes it more expensive than Copper which is sitting at $8700 per tonne. Physical commodities are volumetric markets; they're driven by expected demand versus available supply. Ghana, a major producing country, has lowered their initial production forecast from 850,000 tons to 650,000 tons for the fiscal year 2024. Planning ahead, perhaps considering Halloween candy purchases seven months in advance, could prove prudent.Â
Changes to look for in Q2 2024
- The Securities and Exchange Commission (SEC) and FINRA have announced a change in the settlement cycle for securities transactions, reducing it from two business days after the trade date (T+2) to one business day (T+1), effective May 28, 2024.Â
- Transitioning to T+1 settlement means a shorter window for rectifying errors in calculating investment costs basis. Once the trade settles, your total investment, encompassing fees and dividend handling strategies, becomes fixed for tax purposes. Under T+1, corrections to investment costs must be made within one business day of the trade, contrasting with the previous two-day timeframe.
Q1 2024 Global Markets Recap
Highlights‍
- The US stock market has delivered its most robust performance for the first quarter since 2019
- The Federal Reserve maintained its current interest rates, will we see changes in June?
- Bitcoin ETFs hit a new all-time high
US Markets
The first quarter ended with all major US indexes posting positive returns. Currently, the S&P 500 and Nasdaq are outperforming, whereas US Small Caps and US Large Caps are trailing behind.
Following significant gains across all constituents of the "Magnificent 7" in 2023, there appears to be a divergence in performance after Q1 of 2024. Apple (AAPL) has experienced a decline of 10.82%, partly attributed to diminished iPhone demand from China and pending regulatory antitrust litigation from the Justice Department. Tesla (TSLA) has seen a drop of 29.25% amid further weakening demand in 2024, despite the company's efforts to stimulate demand by lowering prices. Despite the underperformance of AAPL and TSLA, the Magnificent Seven still contributed to 37% of the S&P 500's first-quarter gain.
As of the end of Q1, sector performance has diversified compared to our January market review. While the Communications, Technology, and Healthcare sectors maintain their lead, other sectors have experienced a rebound. Real Estate remains a laggard due to persistently elevated capital costs and stricter lending criteria from both national and regional banks. The Mortgage Bankers Association (MBA) reports a decline in commercial mortgage originations across all major property types and capital sources during FY 2023.
In Q1, factor returns remained relatively stable, with Momentum, Quality, and Growth continuing to outperform other factors—a continuation of trends. Notably, all factors have yielded positive returns for the year thus far. Dividends, in particular, have seen a notable increase of 7.09%, a stark improvement compared to the 0.40% decline observed at the end of January.
‍US Economy
In Q4 2023, real GDP surpassed market expectations, registering a growth of 3.4% compared to the anticipated 3.2%. The recent update from the Bureau of Economic Analysis primarily reflected heightened consumer spending and nonresidential fixed investment, albeit partially offset by a decline in private inventory investment.
Job vacancies have returned to a more normalized level after reaching a peak in Q1 of 2022, yet they remain higher than historical averages. Meanwhile, layoffs remain at historically low levels as companies focus on retaining their existing workforce amid enduring structural supply constraints.
Ahead of the next FOMC meeting scheduled for May, the likelihood of a rate cut stands at 4.3%. However, probabilities rise for rate cuts in the subsequent June and July meetings. Nonetheless, robust employment figures may afford the Fed additional leeway before committing to rate reductions.
Global Markets
As Q1 concludes, Taiwan emerges as a frontrunner in the global markets. Notably, Taiwan Semiconductor Manufacturing (TSM), the largest index-weighted holding, surged by 31.34% during this period. Beyond China and Brazil, global equities have exhibited robust performance in Q1.
Fixed Income Markets
The fixed income markets continue to confront the dual challenges of an unexpectedly robust economy and anticipations of forthcoming rate cuts later in the year. Notably, the negative spreads between 10-year and 2-year yields, as well as between 10-year and 3-month yields. Historically, such negative spreads have been interpreted as harbingers of impending recessionary periods. The 10-year to 2-year spread has remained negative since April 1st, 2022, while the 10-year to 3-month spread has been in negative territory since October 18th, 2022.
During Q1, the long end of the yield curve has exhibited flattening tendencies, fueled by market expectations of monetary policy easing. Bonds with longer dated maturities typically experience more significant price increases when interest rates are cut compared to bonds with shorter dated maturities.
Global bond yields moved in parallel with those of the US, reflecting the anticipation in markets for central bank interventions that will furnish a definitive trajectory for both yields and the fixed income markets.
While fixed income markets maintained relative tranquility in Q1, several factors still loom that could induce volatility and uncertainty, including a resurgence in inflation, persistent or escalating international conflicts, and potential missteps by policymakers in managing the delicate balance between growth and inflation.
Alternative Assets
- Bitcoin maintains its upward trajectory in 2024, soaring by over 57.81% year-to-date, hitting a new all-time high. The cumulative inflow for Bitcoin Spot ETFs has surpassed $11.4 billion.Â
- Gold - Central Banks worldwide have continued consistently buying gold to diversify their reserves and hedge against geopolitical tensions, which has been an added support for Gold prices.
- For the first time in history Cocoa futures have hit $10,000 per tonne which makes it more expensive than Copper which is sitting at $8700 per tonne. Physical commodities are volumetric markets; they're driven by expected demand versus available supply. Ghana, a major producing country, has lowered their initial production forecast from 850,000 tons to 650,000 tons for the fiscal year 2024. Planning ahead, perhaps considering Halloween candy purchases seven months in advance, could prove prudent.Â
Changes to look for in Q2 2024
- The Securities and Exchange Commission (SEC) and FINRA have announced a change in the settlement cycle for securities transactions, reducing it from two business days after the trade date (T+2) to one business day (T+1), effective May 28, 2024.Â
- Transitioning to T+1 settlement means a shorter window for rectifying errors in calculating investment costs basis. Once the trade settles, your total investment, encompassing fees and dividend handling strategies, becomes fixed for tax purposes. Under T+1, corrections to investment costs must be made within one business day of the trade, contrasting with the previous two-day timeframe.
