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March 2024

Signia Invest Insights | March 2024

Market Review and Outlook

  • March closed out Q1 with another strong performance for risk assets, with several equity indices reaching all-time highs, driven by growing hopes for a soft economic landing along with ongoing optimism around AI. Indeed, the S&P 500 was up more than +10% in the first quarter, remarkably marking the first time in over a decade that it’s seen back-to-back double digit quarterly gains. Meanwhile in Japan, the Nikkei saw its strongest performance since Q2 2009, and surpassed its previous record high from 1989. Despite a positive March, bonds saw a weaker performance over the quarter, as more persistent inflation and the strength of the US economy led investors to price in fewer rate cuts from the Fed, leading to a -0.3% decline in the global aggregate bond index year-to-date.
  • That backdrop of positive data surprises provided a major boost to risk assets. For equities, it meant the S&P 500 (+10.2%) and the STOXX 600 (+7.0%) both ended the quarter at a record high, with continuous monthly gains throughout January, February and March. Impressively, the S&P 500 managed to post 16 out of 18 weekly gains for the first time since 1971. Nvidia was the top performer in the S&P 500 over the period, leading the Magnificent 7 to a gain of +17.1%. Whilst the equity bull market is starting to show signs of broadening out, performance in Q1 was still driven by a relatively narrow group of stocks, as the equal-weighted S&P 500 was up a smaller +7.9%, and the small-cap Russell 2000 was only up +5.2%. However, the rally in risk assets was broad, with credit spreads tightening notably, oil prices rising substantially, and crypto assets experiencing a very strong quarter.
  • There was a significant milestone in Japan, as the Bank of Japan ended their negative interest rate policy in March by increasing its key interest rate from -0.1% to a range of 0%-0.1%. That helped push the 2-year Japanese government bond yield up +14 basis points to 0.18%, its highest quarterly close since 2011. Moreover, the BoJ said they anticipated “that accommodative financial conditions will be maintained for the time being”, so perversely, despite the hike, the prospect of low interest rates continuing for some time meant the Japanese Yen was the weakest performing G10 currency over the quarter, falling -6.8% against the US Dollar. On the other side of the G10 currency fence was the Swiss National Bank, who became the first central bank to cut rates in this cycle, with a 25 basis point cut in its policy rate to 1.5%, as Swiss CPI inflation dropped to 1.2% in February with core CPI at 1.1%.

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