Highlights from the Global Markets in 1Q24
U.S. Equity: U.S. stocks rallied sharply in 1Q24 with the S&P 500 Index (+10.6%) closing the quarter at a record high for the 22nd time during the quarter. Communication Services (+15.8%), Energy (+13.7%), and Technology (+12.7%) were the top-performing sectors with Real Estate (-1.1%) being at the bottom and the only sector to deliver a negative return. The equal-weighted version of the Index gained a more modest 7.9% as the largest stocks continued to outperform. The top 10 holdings hit another high at 33.5% of the Index on a cap-weighted basis. Growth (Russell 1000 Growth: +11.4%) outperformed Value (Russell 1000 Value: +9.0%) and large cap (Russell 1000: +10.3%) outperformed small (Russell 2000: +5.2%). Of the “Magnificent Seven,” only Apple (-10.8%) and Tesla (-29.2%) suffered losses. The seven were up 13% for the quarter, with the S&P 500 Index ex Mag 7 up 6%.
Global Equity: The U.S dollar strengthened against most currencies, most notably the Japanese yen (-7%). The MSCI ACWI ex USA Index trailed the U.S. with a 4.7% gain (Local: +8.2%). Technology (+10.7%) was the best-performing sector. Most countries delivered gains but from a regional perspective, Pacific ex-Japan (-1.7%) was hurt by weak performance from Hong Kong (-11.7%). In contrast, Japan (+11.0%) saw double-digit gains that were even better in local terms (+19.2%). Emerging Markets (MSCI EM: +2.4%) were up modestly, trailing developed markets. Latin America (-4.0%) was dragged down by poor results from Brazil (-7.4%) and Chile (-4.5%). China (-2.2%) also weighed on emerging market performance.
U.S. Fixed Income: Bond yields rose modestly in 1Q as expectations dwindled for aggressive rate cuts amid stubbornly high inflation. The U.S. Treasury 10-year yield rose from 3.88% as of year-end 2023 to 4.20% at the end of 1Q24. The Bloomberg US Aggregate Bond Index fell 0.8% for the quarter. Ten-year breakeven spreads, a measure of the market’s expectation for inflation over the next decade, rose from 2.16% to 2.32%. U.S. TIPS outperformed nominal U.S. Treasuries (Bloomberg US TIPS: -0.1%; Bloomberg US Treasury: -1.0%). Investment grade corporate bonds outperformed U.S. Treasuries by 89 bps on a duration-adjusted basis, fueled by strong demand that easily absorbed record supply for a first quarter and the second largest quarterly issuance ever. High yield corporates (Bloomberg HY: +1.5%) outperformed the investment grade market despite an uptick in the default rate to 5.7%, according to data from Barclays Research. Leveraged loans performed even better (S&P/LSTA Leveraged Loans: +2.5%).
Municipal Fixed Income: Municipal bonds outperformed taxable bonds for the quarter. The Bloomberg Municipal Bond Index fell 0.4% with lower quality sharply outperforming higher quality (AAA: -0.8%; BAA: +0.6%). The Bloomberg Managed Money Short/Intermediate Index fell 0.9%. Robust demand easily absorbed supply and most municipal/Treasury ratios remained well below historical averages.
Global Fixed Income: Rates rose in most developed markets and U.S. dollar strength eroded returns for unhedged investors (Bloomberg Global Aggregate ex US: -3.2%; Hedged: +0.6%). Emerging market debt performed relatively well, especially high yield. The JP Morgan EMBI Global Diversified Index rose 2.0% with the high yield component up 4.9%. Conversely, the local debt GBI-EM Global Diversified Index sank 2.1%. Currency depreciation vs. the U.S. dollar hurt returns; the local currency return for the Index was +0.7%. Most currencies were down versus the dollar for the quarter.
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