Market Update with Aled Phillips

With the new financial year well underway, this month’s market update takes a look at the past 12 months across global markets.

Indeed, the last year has been very good for globally diversified investors. Global stocks have returned 17.9% in sterling terms, with the US and Japan the standouts, gaining 23.1% and 19.7% respectively. China was the only major disappointment, losing 6.3% in sterling terms. China’s negative returns were mostly in 2023, though, and Chinese equity gained massively last month.

UK government bonds fell in price, but corporate credit improved. This reflects a roller coaster of changing monetary policy expectations over the last year. Into the end of 2023 and the start of 2024, markets became convinced that interest rates would be cut. Recent economic data have thrown the timeline of those cuts into doubt – particularly in the US.

May-July 2023

May 2023 was volatile, as investors were still concerned about the earlier collapse of several US regional banks, but markets were surprisingly resilient and June saw markets shrug off inflation and interest rate worries. July continued that early summer stock market rally.

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August-October 2023

The sun stopped shining on markets by August, and the months that followed made up 2023’s worst period for returns. The S&P 500 lost more than 10% from the start of August to October 27th. It felt like a reality check, as central bankers affirmed their commitment to keeping rates higher for longer, and investors started believing their stern messaging.

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November 2023-January 2024

In a dramatic turnaround, the late October trough was the start of a rally in global equities that has since returned 36.2% in sterling terms. Falling inflation boosted consumer sentiment and dramatically shifted monetary policy expectations. Bond yields came down and made equities look attractive by comparison, boosting stock valuations.

This culminated in an almighty ‘Santa Rally’ in December. Markets were so strong that yearly returns ended up very positive. Encouragingly, optimism spread to cyclical assets rather than just the dominant US mega-caps. This means investors were positive about global growth, and not just excited about lower interest rates. January saw a bit of a hangover and sideways returns, but the underlying growth optimism remained.

January-April 2024

The first quarter of 2024 carried on that optimism. Global stocks jumped 5% in February, followed by a 3.3% gain in March, taking Q1 returns to 9.2%.

April marked the end of the rally, with global equities losing 2.4% in sterling terms. This was largely a reaction to persistent inflation, and central banks not being able to cut interest rates as soon as hoped. This led to a revaluation of stocks that had become expensive, which is why last month’s biggest losers – Japan and the US – were Q1’s biggest winners.

But the reason inflation has stuck around is because growth is still strong, and corporate earnings reports are now bearing the fruits of that growth. Previous laggards like China and the UK now show optimistic outlooks too – with both rallying in April. Growth looks solid and markets now have more realistic expectations, which should bode well.

While in this month’s market update, we’ve taken a broader look at events over the past year, as ever, these updates are intended to keep you informed about factors affecting investment portfolios. These short-term market movements will not affect your long-term planning, which we have based around conservative assumptions. If you have any queries about your planning or portfolio, please don’t hesitate to  ​contact your adviser.