Following the surge in equity and bond markets in the final two months of 2023, a slew of stronger data, as well as pushback from central bank speakers on the likely timing of rate hikes by central banks, led to more mixed performance from markets in January.
Strong data included retail sales and measures of wage growth, showing how resilient the consumer and labour market has been despite higher rates. The most impactful datapoint of the month was US GDP, which came in at 3.3% above expectations of 2%, fuelled by strong consumer expenditure and government expenditure. This led to further upgrades to consensus GDP for 2024 in the US, reinforcing the view that the world’s largest economy will skirt a recession this year.
In equities, the US and Japan were the strongest performing regions, as many of the largest US technology companies continued to outperform. Our positions in the S&P 500 and the FTSE Japan ETFs were key contributors to performance. In contrast, the UK and Emerging Markets lagged, generating negative returns. In EM, investors continued to digest sluggish performance and housing debt overhang in China.
Fixed Income markets were slightly negative, with yields rising, as markets moved to push out the timing of rate cuts, given the stronger data. Our holdings in US TIPS benefitted from inflation protection, allowing them to eke out positive returns.
Diversifying assets once again provided returns that are uncorrelated with bonds and equity markets. Our position in the AQR Style Premia fund, which goes long and short based on market factors of valuations, carry and momentum generated very strong performance, up over 9% over the course of the month. Alternatives were more mixed, but we continue to believe that there are excellent opportunities within the asset class throughout 2024.
