February Global Commentary: World equity markets accelerate gains

After a positive start to 2024, global equity market performance accelerated in February (MSCI World +4.3% MoM). US corporates essentially wrapped up their feedback on 4Q23 earnings, which were 8% higher YoY in aggregate (and up 11.5% YoY when stripping out the energy companies, which saw earnings go backwards off an elevated 4Q22 base). These results were well ahead of analyst expectations that earnings would barely grow YoY. Similar to 2023, which saw a concentrated group of companies (those most likely to benefit from AI) drive the majority of equity market performance, a small grouping disproportionately impacted February’s stellar performance. Nvidia (+240% YoY in 2023) managed to deliver earnings and guidance that exceeded lofty expectations, and its share price was up 29% MoM, adding 1.1% to the S&P 500’s performance for February. Meta (+26% MoM) and Amazon (+14% MoM) also delivered better-than-anticipated earnings and added another 1% to the S&P 500’s performance between them. At the other end of the spectrum, Adobe, Apple, and Alphabet, among 2023’s top AI performers, delivered earnings that failed to inspire and ended February lower (-9%, -2%, and -1% MoM, respectively).

Emerging markets (EMs) had underperformed developed markets (DMs) for four consecutive months coming into February but managed to slightly best DMs in the month (MSCI EM +4.8% MoM). Chinese equities, which have been a major drag on EM performance, rallied strongly last month as stimulus measures in the world’s second-largest economy helped reverse extremely negative sentiment towards the country’s equities (Nasdaq Golden Dragon China Index +12.3% MoM, Shanghai Composite +8.1% MoM).

February’s strong equity market performance starkly contrasted bond markets (Bloomberg Global Bond Index -1.3% MoM), where fading optimism about the pace of US Federal Reserve (Fed) rate cuts pushed yields higher. US 10-year government bond yields rose comfortably above 4%, ending the month 0.35% higher at 4.25%.

The fading optimism about the pace of Fed rate cuts comes as economic data suggested that the US labour market is still incredibly strong. The US added 353,000 jobs in January (almost double consensus economists’ expectations), while average hourly earnings growth surprised economists by accelerating to 4.5% YoY. US core inflation, which has been gradually slowing since late 2022 and was expected to continue cooling in January, paused at 3.9% YoY, which was still well above the Fed’s 2% target. Higher US rates also boosted the US dollar, which was stronger against all major DM and most major EM currencies in February. Ongoing conflict in the Middle East helped push the oil price higher, with Brent crude up 2.3% MoM to US$84/bbl.

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