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  • Writer's pictureBespoke Financial Advice

The Investment Crystal Ball: Unlocking the 3 Secrets of Future Returns

As we enter the second quarter of 2024, it’s essential to reflect on the first quarter’s macroeconomic picture and the notable market movements. In this article, we will provide you with an in-depth understanding of the current investment landscape. By analysing economic growth, inflation, fixed-income securities, and equities, we aim to equip you with valuable insights to make informed investment decisions.


Macroeconomics: Economic Growth & Inflation


The first quarter of 2024 saw better-than-expected economic growth, particularly in the United States. Contrary to previous expectations of a recession, the US economy grew at an annualised rate of 3.4% in Q4 2023. Strong labour market data that shows robust hiring and wage growth has reinforced this positive growth. As a result, household consumption is expected to remain strong throughout 2024. On the other hand, economic growth in developed markets outside of the US has been more sluggish, primarily due to higher debt burdens in Europe and delayed benefits from Chinese stimulus efforts in developed Asian economies.


In terms of inflation, there has been a clear downward trend since July of the previous year. This trend has supported the Federal Reserve’s guidance towards interest rate cuts in 2024. However, the first two months of 2024 witnessed an acceleration in inflation above the year-on-year rate, running at an annualised rate of 4–4.5%. This has caused uncertainty among investors regarding the possibility of interest rate cuts in the first half of the year.


Markets: Fixed Income


Fixed-income securities, such as bonds, experienced notable market movements in the first quarter of 2024. The price of a bond is inversely related to its yield, meaning that rising bond yields result in falling bond prices and vice versa. As interest rate cut expectations were pushed further into the future and became less probable, bond yields rose. This phenomenon, known as “duration risk,” affected government bonds the most due to their longer maturities and smaller coupons. On the other hand, high-yield corporate bonds, with shorter maturities and higher coupons, outperformed investment-grade corporate bonds and government bonds.


Markets: Equities


Equity markets, unlike fixed-income securities, showed resilience in the face of rising inflation. With the exception of China, which experienced losses due to a deflating property sector, equity markets posted strong returns. Due to robust corporate profit growth and positive sentiment among foreign investors, Japan in particular stood out as the best-performing major region. When breaking down equity returns by sector, industries such as semiconductors, software, and banks made significant contributions to global equity market performance.


Summary


In summary, the first quarter of 2024 has brought positive economic growth, inflationary pressures, and notable movements in fixed income and equity markets. The US economy has exceeded expectations, supporting strong household consumption. However, sluggish economic growth outside of the US has been observed, primarily due to higher debt burdens in Europe and delayed benefits from Chinese stimulus efforts in developed Asian economies. Inflation has shown a downward trend since July of the previous year but accelerated in the first two months of 2024. Fixed income securities, particularly government bonds, were affected by rising interest rate expectations, while high yield corporate bonds-outperformed. Equity markets, with the exception of China, posted strong returns, driven by industries such as semiconductors, software, and banks.


As an investor, it is crucial to closely monitor economic indicators, inflation trends, and market movements to make informed investment decisions. By staying informed and understanding the macroeconomic landscape, you can navigate the investment landscape with confidence.


Remember, this article is for general information purposes only and should not be used as individual financial advice. Book your free, no-obligation consultation and talk with an experienced consultant at a time convenient for you to understand your options

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