Signia Invest Insights | February 2024
Market Review and Outlook
- February was another strong month for risk assets, with several major equity indices at record highs. That included the S&P 500 which surpassed the 5000 mark for the first time, Nasdaq 100 and Dow Jones indices which also hit new all-time highs, as well as the Nikkei 225 which surpassed its previous record from 1989. In part, that was because of continued excitement around AI, helping the Magnificent 7 (propelled by Nvidia) to post their best performance in 9 months. Nvidia added a record $277bn in market cap in one day following its Q4 results, surpassing the previous $197bn single session gain by Meta earlier in February. However, there was a fly in the ointment during the month, with US inflation still above the Fed’s target and surprising on the upside in February, investors substantially pushed out and repriced their expectations of 2024 rate cuts from 6-7 25 basis point cuts starting in March, to 3-4 cuts starting in July, so a swift re-adoption of the ‘higher for longer’ Fed policy theme. In addition, US regional banks continued to struggle, as investor concerns persisted about the commercial real estate sector struggling under higher interest rates and tighter monetary policy.
- World equity markets rallied 4.2% during the month, led by the US, Japan, and China, yes even China! The CSI 300 index of Chinese onshore stocks jumped 9.4% following six consecutive monthly declines in response to the latest round of stimulative measures announced by policymakers. It remains to be seen whether this will have a lasting impact on the downward deflationary and household sentiment cycles weighing on the domestic economy. Fixed income markets struggled, with the global aggregate bond index declining -0.9%, with only emerging market dollar bonds bucking the trend posting a positive return of 0.5% in February as yields remained at attractive levels and spreads over US Treasuries remaining tight. In commodities, oil markets rallied 3.2% on continued tensions in the Middle East and as Houthi rebels stepped up their attacks on ships in the Red Sea, sinking the Rubymar, a British owned bulk carrier cargo ship. This is contributing to rising shipping costs and in particular 1-year inflation expectations, in turn pushing down real rates (nominal rates minus inflation). Historically, real rates are inversely correlated to gold prices, so if this trend continues alongside elevated geopolitical risks, we expect further upside for gold prices this year to new all-time highs. That said, it’s worth noting that in inflation-adjusted real terms, gold is still some way beneath its other peaks in 1980, 2011 and 2020.
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