Q1 Market Commentary 2024

The first quarter of 2024 has remained focused on inflation and interest rate policy on each side of the Atlantic. The previous market view ‘higher for longer’ rotated into a course of easing rates in early January. This view was somewhat diluted over the second half of Q1 while continued resilience in the US employment market and some geopolitical events changed some viewpoints to a more cautionary stance. We still anticipate some rate cuts coming through later on in the year, albeit they remain data dependent.

The domestic market

The UK market was up 3.8% over Quarter 1 as measured by the MCSI UK IMI index. Investor sentiment became more positive regarding improving rate expectations and inflation numbers. This attitudinal change rewarded small and medium sized company investments. Economic growth returned to a positive at the end of December 2023 albeit still at lower levels. Inflation continues to fall with the Office for Budget Responsibility (OBR) forecasting it to drop back to the Bank of England target potentially by the summer. In the budget Jeremy Hunt announced some stimulus measures with some National Insurance cuts and some changes to the non-domicile tax position. A British ISA allowing a further £5,000 to be invested in ISA should help investment into the UK, as it is designed to encourage investment into UK listed companies only, details are to still be concluded.

What about the USA?

In the US, equity markets were resilient as sentiment and a mixture of continuing strong earnings and the inflation/interest rate narrative boosted returns. The US Federal Reserve (FED) kept rates steady over the quarter – they remained between 5.25 – 5.5%. With inflation slowing, market opinion has become more positive and many expect the FED to introduce rate cuts this year. The FED’s preferred measure of inflation has come down slightly from Dec 2.9% to 2.8% as the economy continues to be robust.  Unemployment marginally increased in March from 3.7% to 3.8%.

What’s happening in Japan?

Japanese markets continued to perform well as a mixture of improving corporate earnings, a weaker Yen and greater governance rules combined with inflation increasing has meant that both corporates and consumers have been moving money into other areas to avoid inflation erosion risk being in cash.

ASAM’s outlook

Looking at the investment outlook for the long-term, we continue to focus on fundamentals and companies that have the ability within their business models to adapt to the market conditions that are currently present, and which are possibly more robust to unforeseen change. Over the last twelve months there have been lots of indiscriminate moves in markets, sectors, and individual companies. While we feel the rate cycle has now likely peaked in the US, UK and Europe we cannot rule out further volatility in the short term. Many market changes are reactionary and occur without long term consideration of how individual companies are performing and adapting to the economic environment. It is worth remembering that some of the most successful businesses globally took decades to become the household names they are today.

Corporate earnings so far remain supported and, encouragingly, the US consumer remains in good shape. Employment levels in the US remain a key focus as the job market tightens. We do not envisage a deep recession in the US but will continue to closely monitor economic developments.

While inflation remains generally above central bank targets, we continue to focus on the companies that can build this into their business models and can pass on these increased costings.

On the equities allocation we continue to focus on three main areas which drive returns over investment time frames – these are the share price, earnings, and dividends.

This information is obtained from sources considered reliable, but its accuracy and completeness is not guaranteed by Anderson Strathern Asset Management Limited. Neither the information nor any opinions expressed constitute financial advice. Investments can fluctuate in price, value and/or income and may return less than the original amount invested. Past performance is not necessarily a guide to future performance. Anderson Strathern Asset Management Limited is authorised and regulated by the Financial Conduct Authority.