April 11, 2024

Global equities finished the first quarter at all-time highs.  While we continue to see early signs of broadening market participation, momentum in domestic equities remained the dominant market factor, fueled by heavy interest in the A.I. secular growth theme and expectations for the US to begin easing monetary policy.  Similarly, European markets largely advanced on a handful of names dubbed the “Granolas”, Europe’s biggest companies by market cap.  The return concentrations in the US and Europe, along with strong performance from Japan and weak performance in Chinese equities, drove developed market outperformance over emerging markets.

Fixed income markets were more challenging given the rise in rates during the quarter. This was partially a reflection of a strong economy, concerns that inflation may be stickier, and expectations that rate cuts by the Fed will be pushed out later into the year.

During the quarter we eliminated the small position in the S&P Oil & Gas EP ETF. Supply and demand dynamics appear to be in balance and the decision was made to eliminate the position as the price of WTI moved back up to the upper end of its recent trading range. These funds were used to initiate a position in the FTSE India ETF. An allocation to India gives us exposure to a strong, dynamic, structural growth opportunity.  India has exceptionally high economic growth, falling inflation, favorable demographic trends, and is the beneficiary of manufacturing investments from multi-nationals looking to diversify away from China.  No changes were made to the bond allocation following the shortening of duration last quarter.

In the U.S., the economy continues to display impressive momentum. However, we continue to expect the lagged effects of the Fed’s tightening campaign to lead to a moderation in economic activity – although we still expect growth in both the economy and in corporate profits in 2024.  Our expectations for growth in Europe have improved due to better credit conditions, strength in the labor market, and expectations for the ECB to cut rates later this year.  Geopolitical concerns remain however, with the continued conflicts in Ukraine, the Middle East, and sabre rattling between the US and China.

Inflation has broadly moved lower, which should give Central Banks globally the flexibility to ease rates, which could be a positive catalyst for asset prices, particularly for cyclical sectors and geographies that are attractively valued. The well diversified portfolio benefitted from the broadening market participation of the last several months, and we remain comfortable with the positioning and balance within the portfolio.