Stock markets have the best quarter in five years – 03/29/2024 – Market

Stock markets around the world posted their best first-quarter performance in five years, driven by hopes of a soft economic landing in the US and enthusiasm over artificial intelligence.

The MSCI index of world shares is up 7.7% this year, the most since 2019, with stocks outperforming bonds by the largest margin in any quarter since 2020, even as investors scale back their expectations for quick interest rate cuts. .

The rise was driven by New York’s S&P 500, which surpassed its record level in 22 different sessions during the quarter.

The boom in artificial intelligence has driven market gains, with chipmaker Nvidia adding more than $1 trillion in market value in the first three months of the year, equivalent to about a fifth of the total gain for global stock markets in that year. period.

In the U.S., signs of resilient domestic growth boosted stocks despite unexpected rises in inflation in January and February, which led investors to scale back expectations for up to six interest rate cuts this year.

Markets now agree with the Fed’s projection of three cuts in the year of 0.25 percentage points in the reference rate, which is at its highest level in 23 years.

“This has been a very bullish period,” said Kristina Hooper, chief global market strategist at Invesco. “We also had some excitement about artificial intelligence that helped along the way, but this is a story about, firstly, the loosening of monetary policy and, secondly, a very resilient global economy.”

What started as a technology-driven run on Wall Street gradually widened over the quarter, with stocks in Europe and Japan beginning to outperform the US.

The UK’s FTSE 100, Germany’s Dax, France’s CAC 40 and Spain’s Ibex 35 outperformed the S&P 500 in March as the fast pace on Wall Street began to slow. Other exchanges around the world — and sectors beyond technology — have reached the previous gains driven by AI in the US.

“The stock market is getting very excited and embracing this optimism,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

Leading the pack among major markets is Japan, where growing confidence in the economy and rising prices for domestic chip-related stocks have driven a 16.2% rise in the Topix index in 2024, coming very close to matching the all-time high. 1989.

“Overall, we managed a good fall in inflation without fears of recession,” commented Amelie Derambure, portfolio manager at asset manager Amundi, which has increased its equity holdings, especially in Japan and Europe, as well as investing in the US since the beginning of the year. “Weakness in the economy is unlikely to occur quickly, so we still have some time to ride the current wave.”

The gains in stock indexes came even as government bond yields rose, reflecting falling prices.

Nearly two-thirds of respondents to Bank of America’s latest global survey of fund managers do not expect a U.S. recession in the next 12 months — an increase of just over 10% from early 2023. For the first time in more than two years, most investors also expect global corporate profits to grow in the medium term.

Rising asset prices also reflect investors’ growing appetite for risk. In a single day in January, Nvidia’s market capitalization increased by about $277 billion — the equivalent of the market value of all listed companies in the Philippines, according to HSBC.

A 60% appreciation in the last three months has left the value of bitcoin above the GDP (Gross Domestic Product) of around 150 countries.

Equally substantial gains for other risky assets have led some market observers to compare the current moment to the internet company bubble that burst dramatically in 2000.

But Bank of America strategist Stephen Suttmeier suggested that given the duration of previous stock market rallies that began in 1950 and 1980 and lasted 16 years and 20 years, respectively, the current bull market, which began in 2013 , “is in middle age and could extend until 2029 to 2033.”

A sudden increase in US unemployment or a recession could still affect the ongoing upward trend. “The Fed could find itself in a sticky situation if it starts cutting rates based on labor market weakness, but higher inflation in January and February turns out not to be a hiccup,” said Kevin Gordon, senior investment strategist at Charles Schwab.