Global Asset Allocation Team Market Update – February 2024

Global stock markets extended their gains in January, with the MSCI All Country World (+1.1%) reaching a new all-time high. However, regional performance was mixed – with unrelenting gains in the “Magnificent 7” stocks propelling the S&P 500 to a record high (+1.6%) and a third straight monthly advance. Elsewhere, performance was more muted. Both the S&P/TSX (+0.3%) and the MSCI EAFE (+0.5%) eked out a modest gain, while the MSCI Emerging Markets index (-4.7%) bucked the global trend and tumbled lower amid steep declines in China (-10.6%). 

By contrast, fixed income markets generated negative results last month. After declining rapidly at the end of 2023, government bond yields reverted higher in January as investors recalibrated their monetary policy expectations in favor of a later pivot to interest rate cuts. Indeed, the latest data portrayed a growth and inflation backdrop that is proving resilient, which led to some pushback on the idea that central banks are closing in on near-term rate cuts. At month-end, Federal Reserve Chair Powell reinforced this narrative and leaned heavily against the prospect for a March rate cut – which saw market odds for a rate cut that month falling below 20% after hitting more than 80% at the start of the year. For the month, the Barclays US Aggregate Bond Index was down -0.3%, while the FTSE Canada Bond Universe shed -1.4%. 

The US dollar (DXY) strengthened in January, rising 1.9% as investors scaled-back their wagers for imminent rate cuts from the Federal Reserve. The greenback outperformed all of its major trading partners, with the yen (-4.0%), euro (-2.0%), pound (-0.3%), and Canadian dollar (-1.4%) all retreating last month. 

Finally in commodity markets, crude oil clinched its first monthly gain in four months after an escalation of attacks on commercial shipping in the Red Sea escalated tensions in the Middle East – counteracting concerns around demand in key consumers and strong supply from non-OPEC producers that have been keeping a lid on prices. By contrast, gold posted its first monthly decline since September. Both treasury yields and the US dollar pushed higher last month, dampening the appeal of the non-interest bearing precious metal.

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