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Published: March 2024

Stock markets enjoy continued good news

Strong company earnings and rising employment give investors optimism for the year ahead.

The value of investments can fall as well as rise and you may not get back what you put in. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs.

There was a lot of economic and company data released in February, both good and bad. But the positives outweighed the negatives in investors’ minds, and stock markets saw a bit of a boost.

The global economy is holding its ground even though the UK and Japan entered a recession at the end of last year. And a handful of US technology giants managed to salvage an underwhelming earnings season. 

Positive data keeps coming

The US has continued to act as the stabilising force for global economic growth. The world’s largest economy grew faster than expected last year. Other good news included the country’s unemployment rate staying close to an all-time low, and inflation continuing to fall – albeit very, very slowly.

One thing that’s unclear in the US is when exactly interest rates will start coming down. Going into 2024, there were hopes that America’s central bank, the US Federal Reserve (Fed), could cut rates five or six times, starting in March. Instead, with price rises failing to slow down as much as initially hoped, markets now believe we’ll see just three rate cuts this year.

Well positioned for the positive performance

The Coutts team that manages the Royal Bank funds had already made a number of changes ahead of time, which meant they were well placed to benefit from the recent positive performance. They’ve been steadily increasing their investment in global stocks since October.

The team also bought more high yield bonds a few months ago. These tend to do well while economies are expanding and are offering attractive yields at the moment.

Lilian Chovin, Head of Asset Allocation at Coutts, says the team stands ready as always to make changes if necessary.

“While it’s been a good start to the year for markets so far, we’re still aware of the potential risks that could come further down the line, whether from geopolitical tensions or upcoming elections,” he says. “So while we’re cautiously optimistic, we continue to monitor and analyse market moves and world events closely.” 

‘The Magnificent 7’ boosts US market

After every financial quarter, companies announce how well their businesses have done for the previous three months. There weren’t high hopes going into the first earnings season of the year, although a small number of US technology giants, named the ‘Magnificent 7’, stole the show.

Made up of Nvidia, Meta, Alphabet, Tesla, Apple, Microsoft and Amazon, analysts closely monitored their announcements. And with the exception of Tesla, the bulk of the positive US earnings came from those six other companies.

As a result, their shares prices boomed, carrying the rest of the US stock market on their coattails.

Investors shrug off recession

Both the UK and Japan slipped into recession at the end of the year – when the economy shrinks for two consecutive quarters. But strong economic data and a promising outlook still pushed their stock markets higher.

The Nikkei 225 index – Japan’s largest 225 companies – even reached a 35-year high in February. This was after its companies reported good profits and a weakening yen attracted overseas business, boosting its export activity.

The UK stock market’s performance had a less inspiring month. The FTSE 100, which tends to perform better in a rising interest rate environment, finished flat in February. But the UK recession that hit the news is expected to be short and shallow, with signs that we could be out of it already.

As for when interest rates could start falling in Britain, it could be as early as the summer. Encouragingly, the Bank of England recently said inflation wouldn’t necessarily need to reach its 2% target before it started lowering rates. 

Learn more about investments

Whether you’re an experienced investor or just finding out what investing is, we’ve got a range of articles to help you understand more about investing.

We regularly update our articles depending on what’s happening in the market so check back for future updates.

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