After a strong start to 2024 in Q1, the investment markets hit a bump in the road this April. In this update, we explore some of the main noteworthy contributing factors to this and the resulting impact on key figures.

For the regular readers of our monthly market updates, you will remember a number of stock market indices reached new highs in March. Sadly, this was not to continue, and in April we saw global equities decline by 3.3% (in USD terms) thus ending stock market’s longest winning streak since 2021. However, there were mixed performances across developed economies with the UK’s FTSE 100, ending the month at a new all-time high.

The key themes stock markets are focused on remain inflation and base interest rates, geopolitical risks in the Middle East as well as in Russia and Ukraine, and the various upcoming elections around the world.

In the middle of April (Saturday 13th April) we saw Iran launch a direct attack on Israel in retaliation to an Israeli strike on the Iranian consulate in Damascus, Syria. Iran launched an unprecedented attack of over 170 drones, 30 cruise missiles and more than 120 ballistic missiles which, in the main, was repelled by Israel and its allies. Naturally, when these events occur stock markets tend to fall in value overall; war, destruction and non-co-operation are never good for business. In economic terms, it is a misallocation of resources for growth and development.

Unsurprisingly, stock markets reacted as expected following these events with the S&P 500 recording losses for 6 straight trading days. However, we actually saw the biggest losses on the S&P 500 on April 12th, the day before the attack. As fears of escalation faded as the month went on, stock markets thankfully picked up but were still reporting a loss overall for the month of April.

In the US, another factor was influencing stock markets. Month-on-month Consumer Price Index (CPI) inflation data increased by 0.4%, taking their annual inflation to 3.5%, above the UK for the first time in two years. Underlying data shows strong employment figures are driving an acceleration in labour costs for businesses. US Federal Reserve (Fed) Chair, Jerome Powell, suggested the US may take longer than expected to return to the 2% long-term inflation target. A June rate cut now appears unlikely and markets are forecasting two rate cuts this year, down from an anticipated six at the start of the year.

Europe was expected to be one of the first developed economies (with the exception of Switzerland) to cut interest rates. These hopes were also dashed when inflation data for April came in at 2.4%, unchanged from March.

UK equities outperformed as the FTSE 100 index hit all-time highs in April. The FTSE 100 index has a greater allocation to unfashionable sectors such as: commodity, oil miners and financial companies which benefited from a weaker pound; Middle East tensions; and rate cut hopes. As previously mentioned, inflation in the UK continued downward and fell slightly to 3.2% in March.

The Japanese stock market, the Nikkei 225 index fell heavily during April. Middle East tensions and profit-taking were observed as the index fell by 4.9%. Chinese and Hong Kong equities saw modest growth over the month with a number of supportive policy measures being announced, despite continued fears over the real estate sector and high unemployment, particularly amongst younger people.

With heightened concerns over the Middle East situation and a ‘higher for longer’ interest rate narrative, yields on both US Treasury and UK Government Gilts rose to 4.70% and 4.35% respectively. Despite a downturn in global equities, credit markets performed relatively well. The Bank of England did not meet in April, but Governor Andrew Bailey appeared relatively optimistic about the progress of inflation, noting evidence of easing price pressures.

Although we did not see positive returns for investors in April, market falls were expected with the events of Saturday 13th April. More importantly, this event appears to have acted as a ‘speed bump’ along our investment journey rather than driving off the edge of a cliff. Global growth continues to improve, and inflation slowly but steadily comes down, albeit a bit slower than the early-year optimism.

Should you have any questions following this update or would like to discuss your investments, please do not hesitate to get in touch with a MacDonald Partnership Independent Financial Adviser on 01463 242242.

Author: Douglas Sims, Integrity365

Published: 22nd May 2024