A lacklustre start to 2024
2024 started off with a whimper. January saw muted returns across most of the major markets. The “January effect”, the phenomenon where stock prices were seen to generally rise more in January than in other months of the year, was hopefully not a sign that tough times were to come.
Even the Magnificent Seven stocks (Alphabet, Apple, Amazon, Meta, Microsoft, Nvidia, and Tesla) returned a paltry 2.02% on average in January 2024. In contrast, the average return of the Mag 7 was 21.11% in January 2023.
Holding rates steady
The Federal Reserve decided in the January FOMC meeting to hold rates steady in the 5.25% - 5.50% range. This is the fourth time the Fed has decided to maintain the status quo on its policy rate. The rate decision came days after the release of US GDP growth for 2023. The US economy grew 3.3% in the fourth quarter of 2023, and an aggregate of 2.5% for the year. This was better than what most economists had predicted at the beginning of 2023. One of the largest drivers of this growth is consumer spending and the one factor that contributed to this was the resilience of the US labour market.
The market reaction to Federal Reserve chair Jerome Powell’s non-committal remarks on a soft landing for the economy was not unexpected, with equities falling on diminished hopes for a rate cut in the first quarter of the year.
The Fed continued to emphasise the need to monitor the path of inflation and gain confidence in its sustained stability before embarking on rate cuts.
January market commentary
The global equity market, as represented by the MSCI ACWI, returned a mere 0.59% in the first month of the year. This was a contrast to the decent 4.8% returned in the month before. The developed markets (DM) outperformed their emerging counterparts in a continuation of the trend that started in 2023. One of the strongest performing DM was Japan, which returned 4.6% in USD terms and a strong 8.5% in local currency returns. The US (S&P 500) returned a lacklustre 1.7% while MSCI Europe was almost flat with a return of -0.1%.
Emerging markets as a whole, led by China’s disappointing return of negative 10.6% in USD terms, retracted 4.6%. Chinese stocks faced headwinds amidst lingering fears over the state of the property sector and the economy as a whole. India, on the other hand, generated a positive return of 2.4%. The “higher-for-longer” rhetoric on US fed funds rates weighed on investors’ minds amidst negative sentiment in EM.
In terms of style, value stocks again lagged growth stocks in DM. In EM, it was a different story with growth stocks falling more than value stocks. Similarly, from a size factor perspective, small-cap stocks underperformed large-cap stocks in DM by a significant margin while EM again bucked the trend with EM small caps besting their large-cap peers by almost 3%.
The bond markets experienced a reversal and a decline in returns as hopes of a near-term Fed rate cut withered. Bond yields went up almost across the board. Investment grade corporate bonds saw negative returns but still outperformed sovereign bonds. High yield also generally outperformed relative to investment grade.
Commodities rebounded in January with the S&P GSCI returning 4.5%. The primary driver of this strong performance was the energy and oil sector. The GSCI Crude oil sector rose 6.2% and the Energy sector went up 7.2%. Gold was in negative territory for the month with a decline of 0.7%.
Building a long-term resilient portfolio with Endowus Hong Kong
It is almost impossible to predict exactly how macro events would play out. However, spreading your investments across asset classes and geographies will help with diversifying your risk. With market volatility comes opportunities. If you have a long-term investing horizon, as many of us do, these developments may offer an opportunity through steady, regular investing in diversified and risk-adjusted portfolios.
With digital wealth platform Endowus, you can plan and manage your money — by investing in Best-In-Class Funds and globally diversified, low-cost model portfolios seamlessly.
Click here to get started on your investing journey with Endowus Hong Kong today.
Read more:
- Introducing Endowus model portfolios — curated with Best-In-Class Funds for core-satellite strategies
- Why invest through Endowus
- Choosing Endowus when investing in Hong Kong
- Endowus HK Q4 2023 Model Portfolios Performance Review
<divider><divider>
Risk Warnings
Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested.
Opinions
Whilst Endowus HK Limited (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.
Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.
No invitation or solicitation
Neither the information, nor any opinion, contained in this article constitutes a promotion, recommendation, solicitation, invitation or offer by Endowus or its affiliates to buy or sell any securities, collective investment schemes or other financial instruments or services, nor shall any such security, collective investment scheme, or other financial instruments or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. This is not intended to be an invitation or offer made to the public to subscribe for any financial product or other transaction.
This advertisement has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
.png)
