Still in charge

The US indices performed strongly once again, although were outdone by Japan’s Nikkei, and also the FTSE100 as the UK recession proved a shallow one, and the Bank of England signalled rate cuts were imminent. Other major central banks largely stayed on hold (apart from Japan which signalled the end of its negative interest rate policy) but many also flagged that rate cuts were on the horizon, even if the exact proximity remained up for debate. Markets in NZ and Australia (the ASX200 hit an all-time high) performed strongly, with the RBNZ and RBA both displaying somewhat less hawkish tendencies.

All three major averages in the US notched their fifth straight winning month, capping off a very strong start to the year. The S&P500 surged 10.2% for its best quarter since 2019, with the most record closes (two out of every five trading days) in over a decade. The Nasdaq rose 9.1%, while the Dow jumped 5.6% over the quarter. Key factors included a resilient economy (also reflected in a strong earnings season), falling inflation (despite pockets of persistence) and a Fed prepped for rate cuts (without providing a firm timeline). 

For the month the Dow rose 2.1%, the Nasdaq gained 1.8%, while the S&P500 surged 3.2%. The respective gains show that the rally which has been powered by super-cap AI-related names, while still powerful, is not as influential as it was.  While Nvidia was up around 10% (and 80% for the quarter), the Nasdaq100 was fairly flat. While some super-caps have been strong (Microsoft and Nvidia made record highs during the month), other constituents have been less than “Magnificent”. Tesla fell nearly 30% in the first quarter.

Largely, the “Ides of March” came to pass without incident. This was despite a number of challenges, including two wars, a rising oil price (WTI hit a 10-month high), two relatively hotter than expected US inflation prints, and the revelation that that three major economies (Japan, Germany and the UK) slipped into recession. The timeline for rate cuts by the Fed was also pushed out.

The Fed’s March meeting was significant in other respects. Rates were held at 23-year highs. Investors were however buoyed by officials appearing to indicate they will tolerate inflation being a little bit higher for longer than was previously the case. US economic growth projections for 2024 were lifted significantly (to 2.1%), while core inflation estimates were revised upwards slightly. Fed Chair Jerome Powell said that a strong jobs market wouldn’t stop the central bank from cutting rates, and that the first rate cut would be “highly consequential.” This also appears to suggest that the first cut will be followed quickly in succession by others.