Good morning,

 

Equity markets continue to drive higher, led last week by the phenomenal performance of Nvidia, but Fixed Income markets have been having much more of a mixed time of it in 2024.  The mantra of ‘don’t fight the Fed’ is nothing new in markets, and the disconnect between the rhetoric of central bankers and market expectations, that existed at the start of the year, has nearly been fully bridged. As recently as the second week in January, markets had forecast as many as seven rate cuts from the Federal Reserve in 2024. Today that number stands at three.

 

This ‘recalibration’ has been painful for longer duration bond investors in the US. For example, the 10-year treasury yield (which moves inversely to price) stands at 4.25% today – up from below 4% at the turn of the year. Essentially bond markets are now pricing the prospect of ‘higher for longer’ in relation to rates. However, this doesn’t tally with what we are witnessing in equity markets, where more (at least in theory) rate sensitive growth stocks have led the market higher in 2024. Perhaps it is justified given the earnings projections for AI sensitive stocks such as Nvidia, but there appears to be somewhat of a contradiction between the behaviours of equity and bond markets. As our 2024 Outlook title states, a ‘balancing act’ will be needed in markets for the upcoming period.

 

As always, if you wish to discuss anything in further detail, please do get in touch.