Inflation’s second wave? – Damien’s Market Update – April 2024

8 min Read Published: 16 Apr 2024

Welcome to the latest episode of my monthly YouTube show where I discuss what is happening in investment markets and what to look out for. In this episode, I explain how 2024 is proving tough for investors concerned over stubborn inflation. Are equity markets about to experience the first serious pullback of 2024?

At the foot of this article you can find a quiz to test yourself.

Each show lasts between 5-10 minutes and is aimed at DIY investors (including novices) seeking contemporary analysis to help them understand how investment markets work.

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Abridged transcript - Damien's Market Update - April 2024

So March brought the first quarter of 2024 (Q1) to a close and the table below shows the big winners and laggards taking into account currency moves. 

Index Q1 2024 Performance
Nikkei 225 13.40%
S&P 500 11.45%
Nasdaq 100 9.72%
Deutsche Borse DAX 30 Performance 8.92%
MSCI India 7.04%
FTSE Eurofirst 300 6.90%
Dow Jones Composite Average 5.30%
FTSE 100 3.99%
MSCI AC Asia ex Japan 3.31%
MSCI Emerging Markets 3.30%

The standout performer was Japanese equities. But if you were to pick one underlying theme to summarise the first quarter of 2024 it would likely be the relentless surge in AI stocks and the Magnificent 7 (Mag7) which in turn helped push the wider US indices to new highs and, by osmosis, global stock markets too.

In fact, we saw a wave of new all-time highs in US stock markets, the Japanese Nikkei 225, the German Dax, the Euro Stoxx 50 and even the Indian stock market. We even saw Chinese equities enter bull market territory. In short, investment risk was rewarded throughout Q1. Conversely, bond investors weren’t so lucky as the negative correlation with equities reasserted itself and yields pushed higher.

As we moved into April there were signs that stock market breadth in the US was broadening significantly, meaning that it was no longer just the Magnificent 7 doing all of the heavy lifting. It will have passed a lot of investors by but in March there were rotations out of the areas of the market that performed well in January and February and into other sectors that previously lagged (such as energy). Similarly we saw European and UK stock markets outperform those in the US, again in contrast to what we'd seen earlier in the year. That's not necessarily a bad thing for a bull market but it was a sign that equity investors are starting to rethink their narrative. It's also a reminder to look beneath the surface as to what is driving markets.

As an example, in recent weeks I’ve been highlighting in my 80-20 Investor newsletter the importance of keeping an eye on a number of developing trends, namely the strengthening US dollar, rising commodity prices (particularly oil) and in turn the upward pressure on bond yields. 

These trends have accelerated in April, partly as a result of rising tensions in the Middle East. The tensions helped push the price of oil rise to a five-month high of $90 a barrel of Brent Crude which equates to a 20% rise so far in 2024. While this may have largely passed equity investors by, bond markets have become increasingly twitchy and yields have pushed towards their 2024 highs. The 10 year US treasury yield is now at 4.6%, a level not seen since November. 

But it’s not just oil that is rallying, commodities more widely are also rising. The S&P GSCI is a benchmark for commodity prices which has risen by more than 13% so far in 2024. The index is compiled from of a wide range of commodities and it has the following composition:  

  • 58% Energy (e.g.. oil & natural gas)
  • 19% Agriculture (e.g. wheat, corn, sugar, cotton) 
  • 8% Livestock (e.g cattle)
  • 10% Industrial Metals (e.g. nickel, copper, lead)
  • 5% Precious Metals (e.g. gold, silver) 

The question now is whether during the rest of April and going into May will we see commodities gain further momentum and break higher, causing inflation concerns to resurface? If that happens then don't be surprised to see commodities and energy stocks outperform while equity markets more widely have a setback.

It also remains the case that major central banks’ actions and rhetoric continue to influence market sentiment. The Federal Reserve’s recent decision to maintain interest rates while signalling potential future cuts had given the equity investors a sense of optimism. This stance was mirrored by the Bank of England and the European Central Bank, both suggesting that they soon will likely shift towards more accommodative monetary policies in the face of persistent global uncertainties.

The Swiss National Bank even went as far to announce an unexpected rate reduction indicating that other central banks are also willing to take bold actions if needed. 

But rising oil and commodity prices along with higher than expected inflation data in the US have muddied the waters in recent days, so much so that the market is now pricing in that the Fed will likely only cut interest rates once this year, rather than the previously anticipated three cuts. It means that the market is starting to consider the potential divergence in monetary policy between key central banks, with the US Federal Reserve being less able to cut rates as soon as perhaps the Bank of England or the European Central Bank. If such divergences appear it will likely have significant implications for currency markets, with the more hawkish central banks ultimately sending their currencies higher against their peers. Also historically, stock markets whose domestic central banks have been the most accommodative have usually fared better. We saw this play out in recent days. Following the stronger than expected inflation reading the US dollar enjoyed its strongest week since 2022 hitting a 34 year high against the Japanese yen. The Nikkei 225 burst higher as a result to become the top performing stock market in the weekly performance tables. Meanwhile US stock markets endured their worst week since October. The one silver lining for UK investors is that the pound fell more than 2% against the US dollar which provided a currency boost to any US holdings, limiting the damage to their portfolios caused by the slump in US stocks.

With rate cut odds falling, bond yields spiked as demonstrated by the 10 year US treasury yield. It means that the return for the average UK global bond unit trust fund for the entirety of 2024 is back below zero.

But one asset has continued to shine brightly, namely gold. Since the start of March the rise in the price of gold has been unstoppable, rising over 18% in just the last 2 months alone. This despite the strengthening US dollar and the market’s more hawkish view on the likelihood and timing of US rate cuts. Even as bond and equity markets experienced something of a reset following the stronger than expected US inflation number, the price of gold was up by 5% at one point in a day, setting new record highs for 8 days in a row.

It means that gold’s rally is, to a certain extent, hard to explain and certainly defying conventional thinking about what drives its price. There are a range of theories to explain what is happening, including:

  • central banks buying gold in case the US dollar is used as an economic weapon...
  • the metal being used as a haven due to geopolitical tensions (but these tensions existed prior to the current rally)
  • hedge funds either buying the asset as an inflation hedge….
  • or as a bet that the US economy will have a severe downturn and the Fed will slash interest rates
  • algorithmic trading trying to exploit gold’s upward momentum
… or it could be all of the above or something else. It therefore means it is difficult to say whether the price of gold has further to run or whether it will experience its own pullback. But as gold remains a long-term core holding within my £50k portfolio, I’m currently enjoying the ride.
So to summarise, 2024 is proving tough for bond investors, as they grow concerned over stubborn inflation. Equity investors had been largely dismissing the prospect but in recent days are facing up to the potential reality. Throw into the mix the geopolitical concerns emanating from the Middle East investors are starting to grow cautious. Are we about to experience the first serious pullback of 2024 for equity markets?

Multiple-Choice Test

Test yourself on the topics covered in this month's investing show. I suggest watching the show or reading the transcript (see above for both).

  1. Which index had the highest Q1 2024 performance in sterling terms?
    A) S&P 500
    B) Nikkei 225
    C) Nasdaq 100
    D) FTSE 100
  2. What was a major theme noted in the first quarter of 2024?
    A) Decline in tech stocks
    B) Surge in AI stocks
    C) Decrease in global stock markets
    D) Underperformance of US indices
  3. Which of the following markets finally entered bull market territory in Q1 2024?
    A) US stock markets
    B) Japanese stock markets
    C) German stock markets
    D) Chinese stock markets
  4. What was the major trend in the bond market during Q1 2024?
    A) Bond yields decreased
    B) Bond prices hit all-time highs
    C) Negative correlation with equities reasserted
    D) Increased bond market volatility
  5. In April 2024 the price of Brent Crude oil hit a five-month high, how much was it?
    A) $75 a barrel
    B) $80 a barrel
    C) $85 a barrel
    D) $90 a barrel
  6. What was the Q1 2024 performance of the MSCI Emerging Markets index?
    A) 2.30%
    B) 3.30%
    C) 4.30%
    D) 5.30%
  7. Which central bank unexpectedly reduced their interest rates?
    A) Federal Reserve
    B) Bank of England
    C) European Central Bank
    D) Swiss National Bank
  8. What commodity index is mentioned as having risen by more than 13% so far in 2024?
    A) Bloomberg Commodity Index
    B) S&P GSCI
    C) Thomson Reuters/CoreCommodity CRB Index
    D) MSCI Commodity Producers Index
  9. What was the composition percentage of Energy in the S&P GSCI as mentioned?
    A) 48%
    B) 58%
    C) 68%
    D) 78%
  10. What was the major action taken by the US Federal Reserve recently?
    A) Increased interest rates
    B) Maintained interest rates
    C) Decreased interest rates
    D) Announced unlimited QE
  11. How much has the price of gold risen in the last two months?
    A) 12%
    B) 14%
    C) 16%
    D) 18%
  12. What significant trend was observed in the US stock market at the start of April 2024 before it reversed?
    A) Market contraction
    B) Broadening market breadth
    C) Decrease in market volatility
    D) Unchanged market conditions
  13. Which of the following is NOT a theory mentioned that might explain the rising price of gold?
    A) Central banks buying gold
    B) Hedge funds using it as an inflation hedge
    C) It being used as a physical asset
    D) Algorithmic trading exploiting upward momentum
  14. What is the current condition of the 10-year US treasury yield?
    A) At its lowest since November
    B) Unchanged since last year
    C) At a level not seen since November
    D) At an all-time low
  15. What was the performance of the Dow Jones Composite Average in Q1 2024?
    A) 3.30%
    B) 4.30%
    C) 5.30%
    D) 6.30%
  16. Which sector was mentioned as previously lagging but gained momentum in March?
    A) Technology
    B) Energy
    C) Healthcare
    D) Consumer goods
  17. What might be the implication of diverging central bank policies on currency markets?
    A) Stability in currency values
    B) Lower volatility
    C) Currencies of hawkish banks might rise versus others
    D) Unpredictable fluctuations
  18. What recent commodity trend was noted in the podcast?
    A) Decline in commodity prices
    B) Stability in commodity prices
    C) Rise in commodity prices
    D) No change in commodity prices
  19. What was the state of the US dollar following the release of the latest US inflation data?
    A) Weakest since 2022
    B) Stable
    C) Strongest since 2022
    D) Declining steadily
  20. What was the performance of the MSCI ACWI index in Q1 2024?
    A) 8.19%
    B) 9.19%
    C) 10.19%
    D) 11.19%


  1. B
  2. B
  3. D
  4. C
  5. D
  6. B
  7. D
  8. B
  9. B
  10. B
  11. D
  12. B
  13. C
  14. C
  15. C
  16. B
  17. C
  18. C
  19. C
  20. B

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