Investment Commentary – April 2024

2 minute read

Equity markets saw some weakness in April, breaking a rally that ran from October last year. Hotter than expected inflation data, particularly from the US, along with some negative moves from major market constituents, including Nvidia and Meta weighed on sentiment. Taking into account more recent economic data, central banks are now expected to cut rates later and by less than previously expected.

Inflation continues to be the key focus for investors, with higher than expected readings in the month once again disappointing those hoping for an imminent rate cut. The US Consumer Price Index (CPI) rose to 3.5% for the March reading, up from 3.2% in February and ahead of the 3.4% expected. The increase, and the absolute rate being well above the 2% target rate, have increasingly led the market to question the Federal Reserve’s suggestion that they will cut rates in the near future. The “stickiness” in inflation, that has been seen in many regions, has been caused predominately by labour costs, as well as second round effects from the very high inflation seen in 2022/23. While there has been some easing in the tightness of the labour market, this is likely to continue to cause some pressure over the coming months.

In the UK, unemployment an inflation data released in the month were of interest. Jobs market data in the UK continues to give mixed signals, with the well-publicised inactivity rate impacting different metrics in differing ways. However, it was the rise in the unemployment rate to 4.2% in February that was of most interest. With the rate at 3.8% as recently as December 2023, any continuation of this trend will begin to raise questions on the health of the UK economy.

During this quarter’s results season, there were a number of stock specific moves in the month that were notable for market, particularly amongst the US mega cap tech names. These were both positive and negative. While Meta and Nvidia both continued to perform strongly operationally, they have seen share price falls, following significant rallies. For Nvidia, it was wider concern that demand in the red hot semiconductor sector, was beginning to find a peak. With the market now accustomed to exceptional upward revisions in revenue and earnings, in line results are unlikely to satisfy investors. Similarly, Meta (owner of Facebook), beat expectations although it guided for higher investments into long term projects, which led to a 15% fall in the company’s share price.

Conversely, Alphabet (Google) and Microsoft, two other companies within the so called “Magnificent Seven”, rallied on their results. The extreme volatility in these mega cap stocks is of critical importance for the market, as these shares account for around 20% of global equities. A change in their fortunes could impact the overall market direction, which has been supported by tech sector exceptionalism for some time.

The market is increasingly accustomed to the heightened level of geopolitical risk, with the conflict in Ukraine and the Middle East, although unexpected changes in the dynamic still have the potential to surprise. Looking forward over the remainder of the year, democratic elections will increasingly dominate news flow and have the potential to impact markets.