Following a dynamic start to the year, February 2024 has built upon January's momentum with significant developments across various asset classes. As we navigate the evolving economic landscape, our February 2024 Market update offers a comparative analysis of recent market trends, highlighting key shifts in equities, commodities, and currency valuations. For a comprehensive understanding, revisiting our January 2024 market review may provide valuable context.
How the different asset classes have fared:
(As of 29 February 2024)
Key Themes:
Equity Markets Reach Further Highs: US and Australian stock markets continue to hit record levels, driven by economic optimism and strong sector performances, particularly in consumer discretionary and technology.
Fixed Income Falls: Both international and Australian bond prices fall as rate cut expectations are pushed back.
Australian Dollar Weakens: The Australian Dollar depreciated against the US Dollar due to strong labour and CPI reports from the US.
Commodity Prices Vary: Oil prices rose due to geopolitical unrest and supply cuts, while gold declined in a stronger dollar environment and risk-on market sentiment.
February 2024 Market Update: Equity Markets Reach New Heights
International Equities:
In February, international equities performed well once again, gaining 5.94% over the month with the S&P 500 continuing to reach all-time highs. At the same time hedged equities also performed well but less so at 4.66%. Hedged equities lagged as predictions for early rate cuts in the US were pushed back, leading to a rise in the value of the US Dollar (USD) relative to the Australian Dollar (AUD). This performance can be largely attributed to the Consumer Discretionary, Technology, and Industrial sectors which rose by 6.23%, 4.83%, and 4.70% respectively. The Consumer Discretionary sector grew significantly due to the growing expectation of rate cuts in the US, as the predicted rate cutes come closer consumer discretionary shares will grow in anticipation of increased spending by consumers. The Technology sector also performed well, this can largely be attributed to NVIDIA surpassing earnings expectations and further boosting excitement around artificial intelligence in the market.
The three worst performing sectors in international markets were Utilities (-2.13%), Consumer Staples (0.86%), and Real Estate (0.42%), following general trends from 2023 as value stocks continued to underperform growth stocks. Overall, in international markets February was a continuation of what we have been seeing since the last half of 2023 with growth sectors such as technology and consumer discretionary outperforming the general market.
Australian Equities
The ASX 200 returned 1.17% over the month of February and reached a new all-time high, with the Technology sector massively outperforming the rest of the market with a 21% return. This can be attributed to the general enthusiasm surrounding technology as well as the proposed purchase of electronic design software company Altium by Japanese chipmaker Renesas Electronics which saw the former’s share price jumping 28.76% in a single day. Despite this large return it had little effect on the overall return due to the Technology sector only making up 2.8% of the ASX 200.
The next best performing sector was Consumer Discretionary which returned 8.2%. This was partly due to lower-than-expected inflation figures providing hope for earlier rate cuts from the Reserve Bank of Australia (RBA) which in turn boosted confidence in the largely cyclical sector. The three worst performing sectors in the Australian market were Energy, Materials, and Healthcare which each fell by 6.26%, 4.60%, and 1.50% respectively. The domestic equities market overall in February did not perform as well as international markets, but the Australian Technology sector continued to see massive growth whilst international tech, outside of NVIDIA, has simmered down relative to late 2023.
The Shifting Sands of Fixed Income: A Closer Look at Bond Market Dynamics
Domestic and International Fixed Income
Throughout February international fixed income retreated by 1.05% as the US 10-year government bond yield grew by 10%. This can be attributed to expectations for a March rate cut by the Federal Reserve (Fed) being pushed back after stronger-than-expected US employment and CPI reports. This combined with an announced deepening of OPEC’s oil output cuts, and other strong economic data releases has led to an expectation that inflation will remain elevated above the target rate for longer, delaying proposed rate cuts and pushing up bond yields.
Australian fixed income retreated in February by just 0.32% after the Australian 10-year government bond yield grew by 3.6%. In its February 2024 meeting the RBA announced no change to the cash rate and that it expected that “it will be some time yet before inflation is sustainably in the target range” and that “a further increase in interest rates cannot be ruled out”. This announcement, just like in the US, tempered expectations for rate cuts in the middle of the year and pushed up bond yields.
The AUD's Journey: Factors Influencing Its Recent Performance
The Australian Dollar depreciated against the USD once again in February, retreating by 0.53%. This depreciation likely stemming from the US employment report and CPI report pushing back expected US rate cuts and a general weakening in Australian commodity export prices of 0.1%. The AUD additionally fell in the last few days of the month after the Reserve Bank of New Zealand left its cash rate on hold with a statement implying rate cuts may be closer than expected in New Zealand. The AUD also depreciated against the Great British Pound and the Euro while appreciating against the Japanese Yen.
Commodity Price Movements: Oil Rises Amidst Geopolitical Tensions, Gold Faces Headwinds
In February, the price of gold fell by 0.25% responding to similar trends from January; the appreciation of the US Dollar, an increase in US treasury yields, and a ‘risk on’ market sentiment driven by a positive economic outlook as well as NVIDIA outperforming earnings expectations. All these reasons provide an incentive for investors to move money away from gold and into other assets.
The price of oil rose by 3.74% in February, spurred on by the continuing OPEC supply cuts which were recently extended into Q2 2024. Russia also announced oil supply and export cuts, likely stemming from Ukrainian drone strikes on refining assets in Russia. These supply cuts as well as the geopolitical tensions surrounding the Israel-Palestine conflict in the Middle East have led to the price of oil increasing in February.
Summary
February's market performance underscores the intricate balance between optimism in equity markets and the nuanced challenges faced by commodities and fixed incomes. As we observe record highs in international shares and anticipate the implications of global economic policies, understanding these trends becomes crucial for strategic planning. We invite you to engage with our team for personalised advice, leveraging our insights to navigate these complex market conditions effectively. Reach out to explore how these developments impact your investment strategy and discuss potential opportunities tailored to your financial goals.
Disclaimer
The information provided in this communication has been issued by Centrepoint Alliance Ltd and Ventura Investment Management Limited (AFSL 253045).
The information provided is general advice only has not taken into account your financial circumstances, needs or objectives. This publication should be viewed as an additional resource, not as your sole source of information. Where you are considering the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure for the relevant product before you make any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. It is imperative that you seek advice from a registered professional financial adviser before making any investment decisions.
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