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Navigating Q1 2024: Global Markets, Sector Performance, and More


Middleton logo with Q1 FY2023 update wording


The first quarter of the 2024 Financial Year has seen significant shifts in global markets sparked by ongoing concerns about interest rates and inflation. In this comprehensive quarterly update, we dissect the data, providing you with the performance of major share markets worldwide, sector trends, foreign exchange markets, and the fixed income landscape. Join us as we unravel the intricate story of Q1 2024, offering insights that will empower your financial decisions.



Graph showing return of major share markets


Global Markets in Q1 2024


In the first quarter of the 2024 Financial Year, global markets faced a turbulent journey. The rise in interest rates throughout 2022 and the first half of 2023 continued to reverberate, affecting major share markets across the globe.


Globally almost every sector fell over the quarter besides both energy and communication services. The energy sector was boosted throughout the quarter by the production cuts put in place in some OPEC countries. Contrary to last quarter, in which the US markets saw massive growth in the technology sector due to the mega-cap tech growth stocks, this quarter, the tech sector retreated along with the other sectors. This was due to interest rates being expected to remain elevated further into next year and a slowdown in the economy, which caused growth stocks to became less attractive.


Australian Sector Returns


As with the global sector, energy was the biggest winner in the Australian market over the quarter, with a gain of 8.7% due to the aforementioned OPEC production cuts and oil price increases. The only other sector to grow was consumer discretionary at 4.6% as Australians continued to spend despite elevated inflation and high-interest rates.

All other sectors retreated over the quarter, led by healthcare, which fell by 11.5%. Investors are leaving the defensive sector as the labour market and economic growth remain strong. Australia’s small technology sector, which grew significantly last quarter, retracted by 7.4% as the AI boom slowed and growth stocks became less attractive in this environment of high-interest rates. Materials were down 4.4% as our largest trading partner, China, was wrought by a real estate crisis and economic weakness.



Chart showing quarterly Australian Sector Returns


Foreign Exchange Markets


All major currencies declined relative to the United States Dollar (USD) this quarter. At the very start of the quarter, this situation was reversed but as it became clearer that interest rates were to remain elevated in the US further into 2024, the attractiveness of the USD increase.



Graph showing Global Currencies for September Quarter

Both the Australian Dollar (AUD) and Euro (EUR) fell by 3% relative to the USD, while the Japanese Yen (JPY) and Great British Pound (GBP) retracted by 3.4% and 4%, respectively. As economic uncertainty continues to pervade the globe, investors are rushing to the safety of the USD, which is exacerbated by their high-interest rates.


Fixed Interest Markets


Once again, domestic and international fixed income struggled this quarter. Australian bonds dropped 0.85%, while international bonds fell by 2.93% as interest rates remained elevated. Australian bond yields remained stable throughout the quarter before rising at the end as the RBA considered raising the cash rate in the latest meeting. This raise was mostly seen in longer-term bonds, which led to the end of our short-lived yield curve inversion.



Graph showing Global and Australian Bond Indexes

In the United States, bond yields rose by more than Australian bonds as the Federal Reserve weighed the need to maintain high rates further into 2024 to combat sticky inflation.



Chart showing Australian Yield Curve Inversion

Chart showing United States Yield Curve Inversion


This led to an increase in long-term bond yields and a shallowing of the US yield curve inversion as investors expect interest rates to be monitored for the foreseeable future.


Outlook


In the recently observed economic climate, we have seen that inflation continues its decelerating trend. Despite this slowdown, concerns are emerging due to production cuts and escalating oil prices, indicating that core inflation may remain elevated until these issues subside. In examining the economic landscape in Australia and the United States, a soft landing appears unlikely. The cost of living and high-interest rates continue to impact households.


In terms of monetary policy, there is a risk of future rate hikes if inflation surprises. We do see rates staying higher for a long over 2024 as inflation becomes sticky in Australia. Any future rate hike will continue to impact long-duration bonds.

Reflecting on the performance of equities in the last quarter, aside from technology, most sectors exhibited lacklustre performance—mostly due to external factors. The prevailing high interest rates, coupled with the apparent conclusion of the AI boom, cast a shadow of uncertainty on the overall performance of equities.


Given this backdrop, we advocate for a diversified but strategic allocation of portfolios encompassing a broad mix across various regions and sectors, is recommended. Amplifying the weighting in duration fixed income could potentially serve as a stabilising force with your short-duration names, mitigating risks of any future rate rise surprises. Research remains vigilant, continuously monitoring developments to provide informed, strategic recommendations tailored to navigate these complex economic terrains.



Graph showing Inflation slowing further


As we wrap up this Q1 2024 review, it's clear that the global financial landscape is navigating challenging waters. The rise in interest rates and persistent inflation have left their mark on markets worldwide. To make informed decisions and secure your financial future, it's essential to stay informed. If you're seeking personalised guidance or have questions about your investment strategy, don't hesitate to reach out to our team of experts. Contact us today for tailored recommendations and strategies to navigate these complex economic terrains.



General Advice Warning

This update is issued by Ventura Investment Management Limited (AFSL 253045), which is a related body corporate of Centrepoint Alliance Limited.

The information provided is general advice only and does not take into account your financial circumstances, needs or objectives. Where you are considering the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure Statement 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.

For more information, refer to the Financial Services Guide (FSG) for Ventura Investment Management Limited (available at).

Disclaimer

While Centrepoint Alliance Limited and its related bodies corporate try to ensure that the content of this update is accurate, adequate, and complete, it does not represent or warrant its accuracy, adequacy or completeness. Centrepoint Alliance Limited is not responsible for any loss suffered as a result of or in relation of the use of this update. To the extent permitted by law, Centrepoint Alliance Limited excludes any liability, including negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this update.

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