Investment Viewpoint: reflections on Q1 2024

Written by Bernard Swords, Chief Investment Officer, and Elizabeth Geoghegan, Head of Fixed Income Strategy

08 April 2024

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Equity markets with Bernard Swords, Chief Investment Officer

How did equity markets perform in Q1 – and how has this impacted our positioning? 

  • Equity investors could not have asked for a better start to the year: in Q1, world equities returned over 10% in euro terms. The US and the euro area delivered double-digit returns, while Asia ex-Japan was the weakest region as concerns about the Chinese economy weigh on sentiment in the region. 
  • In the first half of the quarter, the focus was on the impact of AI on the growth potential of the global economy and what it could do to corporate profitability. Hence, we had quite a narrow market. The US market was leading with most of the appreciation coming from the new economy sectors (IT and Communication Services). Over the last few weeks of the quarter, this has broadened out. 
  • By the end of Q1, there was little difference between the performance of the euro area and the US. This happened in sector performance as well. The ‘new economy’ sectors were still the leaders for the quarter (Communication Services +14% and IT +14.7%) but a resurgence in cyclical sectors in March left them not far behind by the end of the quarter (Financials +11.9%and Industrials +11.7%).
  • This broadening in performance has been driven mainly by better economic data coming from regions outside the US. At the start of the year, only the US economy was performing better than expected. By the end of the quarter, growth indicators from both the euro area and China were stronger than forecast so there was a growing belief that the economic momentum was broadening out and the equity markets followed.
  • In terms of our positioning, we have constructed our equity portfolios for a mature stage in the cycle, more structural growth and less exposure to cycle growth. We would maintain that positioning.
  • The news may have improved from the euro area and China, but it is not indicating a major turnaround, just that the deterioration has stopped. The world is looking like a better place than it did at the start of the year but then prices have moved up to reflect this and, with sentiment very high, the scope for shocks is elevated. With the cycle as mature as it is, some caution is always warranted.


Fixed Income with Elizabeth Geoghegan, Head of Fixed Income Strategy

How did fixed income assets fare in the first quarter – and did this influence our strategy? 

  • It was a mixed quarter for fixed income: government bonds lost ground and corporate bonds outperformed with continued positive gains. 
  • This performance was driven by two key themes: firstly, economic data surprised to the upside with US economy releases indicating 3.4% GDP growth in Q4, and PMIs in Europe continuing to rise. This boosted the performance of risk assets such as corporate bonds. Secondly, inflation surprised to the upside, particularly in the US, which weighed on the performance of government bonds. 
  • For government bond markets, the trends in inflation played a major role in the repricing of rate cut expectations and the subsequent moves in yields. In the US, where performance was most negative, inflation came in higher than expected in Q1, which is the primary factor that swung market pricing. 
  • At the start of Q1, markets expected six to seven interest rate cuts from the Fed in 2024, but as we exited the first quarter this pricing moved closer to two cuts, the first of which is expected in June. 
  • These moves weighed on the performance of US treasuries leading to losses – and the same thematic was felt across the water in Europe. Within both regions the losses were most significant for longer duration government bonds, relative to shorter duration government bonds. 
  • Meanwhile, corporate bonds had another positive quarter thanks to the continued positive trends in corporate bond spreads. High yield bonds were the best performers, benefitting most from the increased optimism around risk due to better economic growth data, and strong demand from investors. 
  • Investment grade bonds also participated in this positive performance and actually outperformed high yield bonds in the month of March.
  • In terms of our fixed income strategy, we view the performance and trends in Q1 as supportive of our current thinking. Positive albeit slowing growth is supportive for high quality corporates, whilst the more realistic rate cut expectations limit the headwinds for our increased duration stance. 

The week ahead: what to watch out for

Key data this week will be the inflation reports in the US, both PPI and CPI are to be released. The last couple have disappointed, could we get a surprise? All eyes will be on the meeting of the ECB’s Governing Council. The minutes from the last FOMC (interest rate setting committee of the Federal Reserve) meeting will also be distributed. This week is the start of the Q1 2024 reporting season, with some of the major banks scheduled to release updates.

This is a marketing communication.


Related Articles
Your Investments
Investment Viewpoint: why equity and bond markets diverged last week

Bernard Swords

We reflect on US inflation data and explain why equity and bond markets diverged last week.

Read More
Your Investments
Investment Viewpoint: US healthcare sector in focus

Brian Flavin, Senior Equity Research Analyst, and Elizabeth Geoghegan, Head of Fixed Income Strategy

We present our view of US healthcare and reflect on what happened in fixed income markets last week.

Read More
Your Investments
Investment Viewpoint: how did markets fare in February?

Bernard Swords, Chief Investment Officer, and Elizabeth Geoghegan, Head of Fixed Income Strategy

Here we reflect on the performance of equity and fixed income markets in February. We also preview the upcoming ECB meeting.

Read More
Contact Us
Warning: Nothing presented on this website constitutes investment advice as it does not take into account the investment objectives, knowledge and experience or financial situation of any person. You should not act on it in any way and are advised to obtain professional advice suitable to your own individual circumstances. The value of your investment may go down as well as up. You may lose some or all of the money you invest. Past performance should not be taken as an indication or guarantee of future performance; neither should simulated performance. The value of securities may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities.