Quarterly Investment Report – January 2024

The Everything Rally

Contrary to expectations of an impending recession, 2023 was a favourable year for investors, with Global Equities and Bonds gaining +22% and +5%, respectively. 

Our report examines the key themes driving markets, risks and opportunities for 2024 and beyond. 

Summary of latest insights

• Hopes of Rate Cuts – The market has shifted its focus to towards possible rate cuts amid signs of weaker inflation and a slowing but not stalling global economy (soft landing). This anticipation has fuelled the ‘everything’ rally in equities and bonds. 

• Priced for Perfection – There is a risk that markets are priced for perfection, as lower bond yields can only sustain equity valuations if earnings growth remains steady.  

• Avoiding Policy Errors – If economic growth outperforms expectations, there’s a risk of inflation returning and bond yields spiking, reminiscent of the errors made in the 1970s and 1980s. These concerns could lead to delayed rate cuts, potentially destabilising markets. 

• Focus on Why – History suggests investors should focus more on the reasons behind central banks’ cutting rates rather than their timing, as future returns hinge on whether rates are cut because of a recession (hard landing) or cut to avoid one (soft landing).

• Preparing before Predicting – While we do not anticipate a global recession, investors need to consider both growth and defensive assets within a portfolio context, adaptable to various economic conditions that may unfold.  We maintain a slight overweight to Fixed Interest, considering the near fifteen-year high bond yield. 

^{General Advice Warning: Any comments made in this communication do not consider your objectives, financial situation or needs. Before acting on any general advice, consider whether it is appropriate for you.}