April 2024 Commentary

April proved to be a challenging month for a number of asset classes as growing evidence of sticky inflation made investors rethink the prevailing “soft landing” narrative, putting a “no landing” scenario at the forefront of their minds. A number of the major equity markets started the month at new all-time highs, but that quickly changed as a flurry of data prints from the US, including a strong jobs report and a hotter-than-expected inflation release, led markets to reduce the number of rate cuts anticipated this year. Such repricing was given little push back from Federal Reserve Chair Jerome Powell, who conceded that the data points indicated that it may take longer than expected to achieve their inflation target. With investors expecting the Federal Reserve to keep interest rates higher for longer, it was felt that this may also restrict the actions of other major central banks such as the European Central Bank (ECB). Away from central bank policy, markets were also confronted with rising geopolitical tensions in the Middle East. Fears of a broader escalation of the ongoing conflict were brought to the fore as Iran launched retaliatory air strikes on Israel following the latter’s attack on an Iranian embassy a few days prior. Given the importance of these countries to global oil supply, prices peaked at their highs for the year, however soon fell back after a further escalation failed to materialise.

In terms of market returns, global equities (-2.7%) were negative in April overall, however there was a large variation across regions. UK (+2.8%) and Asia ex Japan (+2.4%) were able to buck the broader negative trend, with UK indices benefiting from their tilt towards the energy sector, while better-than-expected growth figures in China helped buoy Asia ex Japan. After five consecutive positive months, the US (-4.2%) gave back some performance, due to fears of higher-for-longer policy rates. In terms of equity styles, growth stocks (-3.5%) underperformed value (-2.9%), and small-cap stocks (-4.0%) lagged large caps (-2.7%), given relative sensitivity to interest rates. This was also reflected in sector performance, with Utilities (+1.1%) and Energy (+0.6%) the strongest two sectors, while Real Estate (-6.6%) and Information Technology (-5.4%) lagged significantly.

Fixed income markets were negative over the month, with higher-quality (more interest rate sensitive) government bonds underperforming on a relative basis. The higher-than-expected inflation reading pushed back market expectations for rate cuts and forced bond yields to rise, meaning that the Global Aggregate bond index fell -1.6% over the month. Strong macro data helped support credit spreads, however, this was not enough to halt a decline within high yield (-0.7%) which finished the month under water.

In the real assets space, both global real estate (-5.4%) and global infrastructure (+0.6%) fell over the month, with the infrastructure segment faring relatively better given its higher weighting to energy. Commodities were one of the few positive areas in April, with Gold (+3.4%) up strongly due to its safe haven status and industrial metals (+13.9%) propelled by surging copper prices because of a combination of tight supply and rising demand given the recent pickup in manufacturing activity.