Following a promising start to 2024, the global equity market continued to gain momentum throughout February, amidst economic resilience in the US. The MSCI All Country World Index closed the month at an all-time high (+4.3% MoM), with the large cap S&P 500 index also boasting a record close of +5.3%. This marks gains in 16 of the last 18 weeks – a feat that hasn’t happened since 1971.
These outcomes surpassed analyst forecasts, which had predicted minimal year-over-year earnings growth. Similar to the trends observed in 2023, where a select group of companies, particularly those poised to benefit from AI, significantly influenced equity market performance, February's exceptional results were similarly impacted by a small subset of key tech companies. Nvidia’s results surpassed expectations, contributing 1.1% to the S&P 500's performance. Meta (+26% m/m) and Amazon (+14% m/m) also outperformed, collectively adding 1% to the S&P 500’s performance. Conversely, Adobe, Apple, and Alphabet, which were among the top AI performers in 2023, reported earnings that fell short of expectations, resulting in declines by the end of February (-9%, -2%, and -1% month-over-month, respectively).
Within equities, emerging markets performed well, up 4.8% over the month thanks primarily to a Chinese rebound. In developed markets, Japan continued to outperform, with the Nikkei 225 Index reaching a new all-time high for the first time in over 30 years. In contrast, UK and South African stocks lagged.
Fixed income markets came under pressure as investors continued to push out interest rate cuts further into 2024, with US Treasuries down 1.3% in February. Less rate-sensitive high yield bond markets outperformed, with euro high yield eking out an 0.4% gain.
US MARKETS
Surpassing expectations, January inflation in the U.S. stood at 3.1% y/y, leading to a diminished outlook for Federal Reserve interest rate cuts in 2024. Additionally, resilient economic data was evident. The U.S. added 353,000 jobs in January (almost double consensus expectations), indicating that the U.S. labour market is still formidable. The release of the core PCE price index, the Federal Reserve’s preferred inflation measure, also contributed to February’s bullish sentiment. The print met market expectations, showing a 2.8% y/y increase in January, alleviating investors’ concerns about a potential upside surprise. However, it remains above the Fed’s goal (which targets a 2% annual inflation rate).
Higher US rates also boosted the US dollar, which was stronger against all major DM and most major EM currencies in February. Ongoing conflict in the Middle East helped push the oil price higher, with Brent crude up 2.3% MoM to US$84/bbl.
EUROZONE/ UK MARKETS
In February, inflation in the eurozone eased less than anticipated, dipping from 2.8% to 2.6% at the headline level but remaining above the expected 2.5% rate. In terms of economic health, a larger-than-expected surge in the eurozone composite PMI to 48.9 in February likely indicated that the worst of the continent’s growth weakness is likely over. European stocks rose +4.93% over the month (Euro Stoxx 50).
Elsewhere in the region, the UK and Sweden recorded two consecutive quarters of negative GDP growth. On the market front, the FTSE 100 ended the month flat (-0.01%) as recent financial results from UK companies fell short of expectations, prompting analysts to lower their estimates for the year 2024.
EMERGING MARKETS
China's stock market faced challenges in February but closed the month with gains as investor sentiment stabilised, driven by potential stimulus, tighter regulations, and positive property market measures. The economy remains in deflationary territory, while China’s annual GDP growth rate for 2023 marked the lowest since 1990. Hong Kong's Hang Seng Index rose by +6.6%, its best since January 2023, while the Shanghai Composite Index jumped +8.1% m/m.
Japan’s stock market continued to outperform, with the Nikkei 225 (+7.94%) Index reaching a new all-time high for the first time in over 30 years. Japan’s core CPI cooled to 2% y/y in January, beating estimates and supporting the case for the Bank of Japan (BOJ) to continue moving toward ending its negative interest rate policy in April. Inflation has matched or exceeded the BOJ’s target for 22 months.
LOCAL MARKETS
In South Africa (SA), Finance Minister Enoch Godongwana delivered the 2024 budget speech during the month. In addressing a slow economy and limited tax growth, Godongwana revealed a plan to release R150bn from the South African Reserve Bank's Gold and Foreign Exchange Contingency reserves over three years, aiming to ease the government’s debt burden. The budget speech additionally highlighted key tax reforms, including a two-pot retirement system and incentives for local electric vehicle and renewable energy initiatives. Notably, no further financial aid for Transnet or the Post Office was granted, signaling increased private sector involvement in infrastructure funding.
SA experienced an uptick in its inflation rate in January, marking the first such increase in three months. CPI rose from 5.1% in December to 5.3% in January. Core inflation, excluding food and energy, remained steady at 4.5% y/y. Reserve Bank Governor Lesetja Kganyago affirmed that there will be no interest-rate cuts until inflation is effectively managed. The Monetary Policy Committee will deliver one more rate decision before the elections when it gathers at the end of March.
The rand struggled against a stronger US dollar in February, finding itself amongst the worst-performing EM currencies during the month to close at 19.199/USD(-2.7 MoM), with only the Turkish lira (-2.9% MoM) and the Chilean peso (-3.7% MoM) faring worse.
Credits: Strategic IQ, Bloomberg, JP Morgan
© 2024 CAPTA Wealth