Quarterly Economic Briefing: Q1 2024
Investors began the year optimistic of a soft landing; fast-forward a few months, and rate-cut expectations have been pushed out as economic data proves resilient in many parts of the globe.
Executive Summary
Investors appear to be shrugging off news that the central banks may postpone rate cuts as board members await additional cooling signs amid resilient global economic activity, a strong job market, and elevated inflation readings. Strong corporate earnings results are helping equity markets, especially for artificial-intelligence-related companies.
Let’s remember that investors went into the start of the year optimistic that a soft landing was in store for the economy, inflation would continue to normalize, and central banks would start cutting interest rates by midyear. Fast-forward a few months, and rate-cut expectations have been pushed out as economic data proves resilient in many parts of the globe.
That said, equity returns have been far from uniform across countries. Japanese stocks are rising strongly, while UK equities have eked out small gains despite a recession announcement. Performance has been similarly divergent across emerging markets, with Chinese and Brazilian stocks enduring losses, while India has gained.
While this creates a complex landscape, we still see positives in this environment and opportunities to add value. A short list of our convictions include:
- Chinese tech stocks
- Emerging-markets debt
- Government bonds
The market's proclivity for mega-cap stocks is a major talking point, with the “Magnificent Seven” dominating performance in recent memory, although this has been heavily swayed by Nvidia, which rose more than 80% in the first quarter of 2024. Outside of Nvidia, Tesla was down 27% in the quarter—the worst performer in the entire S&P 500. Apple was also down 11%, while Google was up 8% but trailing the broad market. Notwithstanding these changes, market concentration in the very largest stocks has reached a level not seen since the "Nifty Fifty" era of the early 1970s.
Turning to bonds, improving news on the global economy is causing yields to inch higher, providing a headwind for fixed-income asset classes. High-yield bonds have been a standout among fixed income.
