Mercer market review 

Markets can move rapidly and conditions can change based on macro- and micro-economic news and data. At times, it can be difficult to keep up and to determine the important information from the noise.

Our global investments analysts and researchers, and market and asset class specialists, are constantly monitoring markets to identify the most important developments and potential opportunities. 

Our monthly and quarterly insights reports provide a summary of what we believe to be the most significant news points and market movements and attempt to explain them, aiming to keep you on track and informed while still allowing you to keep a focus on the long term.

Global equities continued their strong momentum in March. Global fixed income had low positive returns. US equities marginally underperformed international developed equities but outperformed emerging market equities. Contrary to recent months, value outperformed growth as equity performance broadened beyond just technology stocks. As the corporate earnings season wound down, markets shifted focus to economic growth and key central bank decisions. In general, developed market central banks remained dovish. In the US, the Federal Reserve (‘Fed’) released an updated dot plot, reaffirming their intention to cut rates up to three times in 2024, even if this is now expected to happen later in the year than originally expected. Yields slightly fell across the board and credit spreads declined further. Strong growth momentum and monetary policy remaining on track to becoming loser this year despite resilient  growth and inflation supported equity momentum. It also led to a modestly positive returns for fixed income and other yield sensitive equity sectors.

Forward looking composite purchasing manager indexes (PMI) slightly eased in the US and UK but remain in expansionary territory. Elsewhere in developed markets, PMIs increased in Japan and the Eurozone, however the latter remains just below expansionary territory. China’s manufacturing PMI returned into positive territory after declining for five months. The US economy added 275k jobs in February, beating expectations of 200k. With that said, previous months were revised sharply lower. Retail sales in the US increased month over month but came in below expectations. Overall, economic data continues to show a resilient global economy, led by the US.

US headline inflation increased to 3.2% while core inflation eased to 3.8%. Both inflation prints were slightly above market forecasts for the second month in a row. Inflation expectations rose in March as the Fed also revised their inflation forecasts slightly higher. Inflation moved lower in the UK and Eurozone, as expected. Inflation in Japan increased but came in below expectations. The Bank of Japan (BOJ) raised interest rates and terminated yield curve control as inflation has been rising above the BOJ’s target. This increase brings an end to negative interest rates, which have been in place for eight years. Other developed market central banks left rates unchanged, except for the Swiss National Bank, which was the first G10 country to cut rates this cycle. Inflation in China increased for the first time since last August following increased spending during the Lunar New Year holiday.

Conflicts in the Middle East and Ukraine continued. In the US, “Super Tuesday” saw President Biden and former President Trump secure enough votes to most likely be nominated as presidential candidate for their respective parties. The tragic collapse of a bridge in Baltimore disrupted the operations of a busy US port but the overall impact on supply chains is expected to be limited.  Elsewhere, Sweden officially joined NATO, becoming its 32nd member. Russian President Vladimir Putin was re-appointed for his fifth term in office. China’s President Xi met CEOs from US companies promising to address concerns and improve business conditions in China. The market impact of political and geopolitical developments was limited.

The US dollar strengthened against most major developed and some emerging market currencies in March as markets continue to expect the US to maintain its rate advantage. Natural resource equities rallied while global REITs outperformed global equities. Oil increased by around 6%, closing a strong first quarter. Gold and Natural resources moved meaningfully higher in March as well, for gold this was partly due to purchases from China.

Global equity markets performed strongly during the first quarter. Even though the Federal Reserve shifted gears on rate cuts, equity markets focused on the AI narrative and a generally solid economy, which benefited US large growth stocks the most. Returns for small cap, value and non-US were more subdued, yet positive. Equity volatility remained low and declined during the quarter as equities had positive returns across the board.

Treasury yields rose sharply during the quarter as markets positioned for a slower pace in rate cuts than expected at the end of 2023. The 2-year Treasury yield rose by 40 bps from 4.2% to 4.6% during Q1, while the 30-year Treasury yield also rose by 30 bps from 4.0% to 4.3%. Credit spreads declined during this risk-on quarter.

Global equity markets experienced a decline in the quarter, primarily due to an increase in longer-term rates as markets anticipated a prolonged period of higher rates. Volatility remained low for most of the quarter but rose in the final weeks alongside the spike in rates.