Global Asset Allocation Team Market Update – March 2024

Global stock markets notched their fourth straight monthly gain in February, with the MSCI All Country World rising 4.2%. The tech-heavy S&P 500 (+5.2%) broke through the 5000-mark and continued to lead the global charge thanks to the unrelenting rally in big tech. Indeed, the “Magnificent 7” (+12.1%) powered US equity gains, posting their best performance in nine months. The S&P/TSX also advanced, albeit more modestly (+1.6%), while the MSCI EAFE gained 1.7%. Finally, the MSCI gauge of emerging market stocks (+4.6%) jumped to a six-month high and has nearly erased all of its year-to-date losses, thanks to a strong, policy-driven rebound in China (+8.4%). 

By contrast, fixed income markets generated negative results. Treasury yields pushed higher on the back of strong economic and inflation data in the United States, while a chorus of Federal Reserve officials were hammering home the message that they are in no rush to cut interest rates. Investors unwound their bets for early and rapid rate cuts in response and now expect the Fed will first lower rates in June and are pricing just 85 basis points of rate cuts in 2024, which is down from 150 basis points at the beginning of February and a pace more in line with policymakers’ median projection in December. This dynamic contributed to a sharp backup in bond yields, with the 10-year treasury yield climbing 34 basis points to 4.25%, while the policy-sensitive two-year treasury yield rose by a larger 41 basis points to 4.62%. For the month, the Barclays US Aggregate Bond Index was down -1.4%, while the FTSE Canada Bond Universe shed -0.3%. 

The US dollar (DXY) strengthened in February as investors scaled-back their wagers for imminent rate cuts from the Federal Reserve. Treasury yields backed-up in response and pushed the greenback higher versus its major trading partners, with the yen (-2.0%), euro (-0.1%), pound (-0.5%), and Canadian dollar (-1.1%) all retreating last month. 

Oil clinched its second straight monthly gain on the back of bullish tailwinds stemming from lower OPEC+ output and escalating Middle East tensions that have tightened physical market conditions. Finally, gold fluctuated between gains and losses last month. Bullion dipped below $2000/ounce mid-month before regaining some ground in-line with expectations for a Federal Reserve pivot to easing later this year.

[…]