Commentary: 1Q 2024 Summary
The first quarter of 2024 saw a strong growth in global equities, while the DM fixed income yields have increased across maturities. In the US, strong economic growth and optimism around the AI theme have boosted investor risk appetite. While the 4Q23 GDP grew by a higher than expected rate of 3.4%, Technology and Communications sectors have rallied in the face of strong earnings growth expectations. Importantly, equity markets performance was rather broad-based, with the exception of small-caps that lagged their mid and large-cap counterparts (see figure to the right). Interestingly, the positive dynamic played out despite a rising belief that the Fed will implement a slower cutting cycle than initially expected. As inflation ticked slightly upwards in 2024, Fed is now expected to deliver only three 0.25% rate cuts this year (markets were anticipating five to six 0.25% cuts in early 2024).
Looking ahead, analysts are still overweight in global tech stocks, while favoring US treasuries for balancing portfolio risk. Implementing AI systems is expected to give a significant profitability boost to the global technology sector. With that being said, it is hard to predict the timing of full impact, so investors are likely to benefit from staying invested in leading tech companies from the US as well as from Europe and Asia. In terms of US treasuries, the elevated yields look too attractive to ignore, as 1-year and 2-year rates stand at 5.0% and 4.6%, respectively.
