Introduction
Quarter one of this year favoured the risk taker. The first three months of the year have proven to be positive for equity portfolios. If you leaned towards a higher equity content for this quarter, you made the correct decision. A full allocation to an equities fund could see you enjoy returns of close to 13% and the more conservative 60/40 portfolio returned closer to around 8%. Looking deeper & wider, we saw some individual markets performing very well, with the Irish market returning around 17% & the Japanese index around 18%. As is tradition, the US also continued its steady growth trend.
What has driven growth in Q1?
Generally speaking, the speculated easing of inflationary measures has been the most influential driver across major markets. Despite not yet declaring the war on inflation as over, central banks took a more optimistic approach to inflation. Interest rate cuts have yet to be announced but appear imminent, and markets clung onto this. Towards the tail end of Q1,we saw inflationary data come in a little stickier than central banks would have liked, and this is why we have not yet seen rate cuts.
On the flip side, we have seen financials, particularly in Europe soar. The banking sector have benefitted from higher lending margins due to the current rate climate. The European Banking index finished out at just under 16% return for Q1.
The magnificent seven continued their 2023 trend of contributing a significant of the S&P500 growth in Q1, although we are beginning to see this falter a little, with Tesla being the most obvious example of this.
What to expect for Q2?
It is our belief that we will experience more of the same for Q2. It will be interesting to see how the magnificent seven will play out. With some slow down seen by Tesla & Apple, the long-term trajectory of growth may be beginning to correct and align more with the market. That being said, the backdrop for AI enhancements appears to be growing from strength to strength which is always welcomed by markets.
The imminent rate cuts by the ECB may see financials falter a little, but in general, this news is good for the wider markets. Should the forecasted rate cut for June materialise, we anticipate markets will respond positively.
As is always the case with markets, they will be keeping a close eye on worldwide geopolitical events and tensions. The upcoming election climate will likely have a considerable influence on investment markets.
Summary
Q1 rewarded risk. Going into Q2, we think this will also be a common theme. We forecast that the current climate is set to continue, albeit at a slower pace. In saying all this, it is important to not lose sight of your investment plan and long-term goals. We cannot stress the importance of a well thought out investment plan. Week to week, quarter to quarter, markets change but, a comprehensive plan will combat any fluctuations experienced by the markets. This review captures a moment in time, stay the course!
