Quilter Cheviot|Weekly Comment

Stocks edge higher in quiet week

Our weekly market overview from Quilter Cheviot

By Richard Carter, Head of Fixed Interest Research

The absence of significant economic news meant financial markets experienced a light yet steady performance last week, with the MSCI All Country World Index climbing 0.4% — up 8.3% year to date to mark a solid end to the first quarter.

On Thursday, the UK’s Office for National statistics confirmed that the country has indeed entered a technical recession for the first time since early 2020. Despite the news, the UK stock market saw a modest increase last week, with the UK large cap index rising my 0.3% (up 4.0% year to date) while the UK mid cap index increased 0.8% (1.5% year to date). This uplift was largely supported by a surge in consumer goods and healthcare sector investments, as the UK populous geared up for the long bank holiday.

UK bond yields experienced a slight dip, with the 10-year gilt yield decreasing to 3.93%, reflecting something of a cautious stance from investors amidst expectations for interest rate reductions in the not-too-distant future and ongoing economic uncertainties. The British pound remained stable against major currencies, closing the week at 1.26 against the US Dollar.

Elsewhere, the MSCI Europe ex UK Index gained 0.6% (3.7% in March, 8.3% YTD), despite some signs of slowdowns in major economies. Similar to the UK, the expectation of central bank support in the coming months is supporting equity markets. The euro was little changed on the week against the US dollar, finishing the week at 1.08.

‘Cautious optimism’ on US inflation

In the US, the week leading up to the holiday weekend was marked by subdued market activity. Nevertheless, Wall Street concluded the week on a positive note, with US large cap climbing 0.4% (an impressive 10.6% gain year-to-date). The benchmark achieved not only new closing highs but also set new intraday records.

In particular, tech stocks continued their upward trajectory, adding 1.8% over the week and pushing the benchmarks into record territory for the first time since 2022.

The latest inflation data from the US shows further evidence that the fight against rising prices is making headway, with the core personal consumption expenditures price index aligning with expectations at 2.8% annually. Inflation gauges have settled down considerably after surging higher a couple of years ago, but they do remain comfortably above central bank targets.

This data – coupled with the Federal Reserve’s stance on inflation – indicates a cautious optimism in the market, with investors closely monitoring the central bank’s next moves. Questions remain as to whether chair Jerome Powell will deliver an interest rate reduction when inflation is still significantly above target and gauges of economic activity are showing ongoing strength.

On Thursday, the University of Michigan’s consumer sentiment index brought encouraging news, reaching its highest point in 21 months, largely due to diminishing concerns over inflation. “Throughout the initial quarter of 2024, there has been a consistent sentiment among consumers that the economy is maintaining its stability,” observed the chief researcher.

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Read the original article from Quilter Cheviot here…

The value of your investments and the income from them can fall and you may not recover what you invested.

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