Market Wrap | March

March capped off a spectacular quarter for global stock markets ending the quarter 12% higher than they started the year. This is one of the best first quarters in the post war era and the best quarterly stock market performance since 2019. Markets are now up almost 30% since the end of October an amazing period for investors and KiwiSaver members.

In the below market wrap we discuss:

• US economy continues to defy all odds and is the driving force behind global stock market gains

• New Zealand's recession deepens: Stagflation and productivity issues signal tough road ahead

• Inflation uncertainty is delaying anticipated interest rate cuts

• The stock market rally has become a whole lot wider than the magnificent 7 and questions around Tesla’s long-term value

• Bitcoin ETF’s have finally started to take demand with an influx of $5 Billion market value

Source: Factset: kōura returns are pre tax and post fees. Returns over 12 months are annualised. Past performance is not necessarily an indicator of future performance and return periods may differ. Local market returns use the relevant markets indices; NZ Equities uses NZX50 index; US Equities uses S&P500 index; Rest of World uses MSCI EAFE Index; Emerging Markets uses MSCI Emerging Markets Index, Fixed Interest uses Bloomberg Aggregate NZ Composite Bond Index. Bitcoin return is the USD change in price of Bitcoin. 

1. The US economy continues to go from strength to strength 

Economic data out of the US continues to surprise to the upside.  Economic growth appears to be stronger than anticipated, unemployment is lower and somehow inflation is falling (kind of).  This is a panacea that no one ever thought possible 6 – 12 months ago.  If this continues, the US Federal Reserve will have pulled off the greatest of miracles, a soft landing.  Jerome Powell will go down in history as the most successful central banker of all time if this trend continues. 

The US economic growth has been attributed to a combination of excess savings from the pandemic (all those stimulus cheques), the massive government spending through the Inflation Reduction Act and the surge in on shoring of manufacturing as a result of the trade war with China.  It does raise the question of whether globalisation of supply chains trade has been good or bad for the US economy.  

The US economic performance compares starkly with the rest of the world’s large economies which are all skirting with or in recession. Germany, UK, Japan and France are all sitting in recessions and China’s economic performance continues to disappoint (more below).   

The big question on everyone’s mind is whether the US economic strength can continue its stellar growth in light of a global growth slowdown and a US consumer that is running out of excess savings. 

2. NZ Economy is a whole lot sicker than we had anticipated 

In complete contrast to the US, New Zealand announced its GDP growth numbers in March confirming that we are in a recession.  While the headline numbers were only slightly negative, the per capita GDP numbers were atrocious at -0.7% for the quarter taking the annual fall in GDP per capita up above 3%.  Many Kiwis have been feeling poorer over the past 12 months and this is confirmation of that. 

Unfortunately, the New Zealand economy is in a pretty difficult space.  We have higher inflation than many of our international peers and low, the definition of stagflation.  Unless inflation starts to fall rapidly it is difficult to see interest rates falling from their current levels and giving every day kiwis the respite they desperately want. 

The lack of focus on productivity and investment in the New Zealand economy for the past 30 years appears to have finally come to roost.  It will be a long and expensive path back to restoring New Zealand into a highly productive country.   

3. We’re starting to see some uncertainty around interest rate cuts 

Inflation prints over the past 6 weeks have appeared stronger than anticipated in many parts of the world.  The miraculous disinflation that was seen at the start of the year has slowed with inflation numbers remaining resilient around 4% annualised in the US and slightly higher here in New Zealand.   

Markets had expected 5 rate cuts in the US in 2024, though that number has now been reduced to 3.  The timing of rate cuts in the US also continues to be pushed out with expectations moving from May to June and potentially back into the Q4, though it is unlikely that the Fed will want to cut rates around the Presidential election which potentially pushes us into a 2025 rate cut environment. 

Here in New Zealand, Adrian Orr has told markets he does not expect to drop interest rates until 2025, though economists do not quite believe this with markets anticipating rate cuts in Q4 2024. 

Amazingly, markets are taking the uncertainty around interest rates cuts in their stride and don’t seem to be phased by the higher rates.  

4. The stock market rally has become a whole lot wider than the magnificent 7 

March saw the Russell 2000 (the index of smaller stocks) outperform the Nasdaq demonstrating the strength of the broader economy.  The magnificent seven is quickly turning into the magnificent 3 with Microsoft, Nvidia and Meta demonstrating strong growth while Apple and Tesla are demonstrating a few issues of their own.  Apple is seeing declining iPhone volumes and analysts are starting to compare it more to a Coca Cola than a high tech AI driven play. 

5. Tesla seems to be in a bit of a pickle

Tesla announced on 2 April that its delivery of cars fell 8.5% versus Q1 2023 a much bigger drop than anticipated and the first quarterly drop since the Covid impacted Q1 2020.  Elon Musk believes that the sales decline is due to the wait for new models.  The market is concerned that the sales decline reflects falling demand for EV’s and a very distracted and polarising Elon Musk.   

The value of Tesla shares has fallen 75% since their 2021 highs reflecting a $1.5 Trillion USD reduction in value, a fall greater than the value of the entire crypto industry.  The next 12 months will be critical to seeing whether Tesla can become the high growth disruptor of the auto industry or just another auto company.  

6. Bitcoin ETF’s have finally started to take demand 

The Bitcoin ETF’s have finally started to come into their own. The ETF’s bought in over $5b of net new investment in the month and now have a combined market value of over US$30 billion.  These ETF’s have been far more successful than many people had expected.   

As predicted, weeks with strong demand for the ETF’s pushes up the price of Bitcoin.  Bitcoin flirted with all time highs up to $71k in the month, though the volatility remains with prices fluctuating between $63k and $71k over the last week of the month.  The big question on everyone’s mind is what happens when the tide turns and will a rush for the exit result in a massive fall in the price of Bitcoin.   

Maybe the upcoming halving will change this. 

Disclaimers

Cryptocurrencies are highly volatile assets and not suitable for everyone. Cryptocurrencies still have an uncertain future and are therefore not appropriate for all KiwiSaver members. Before investing part of your KiwiSaver balance in cryptocurrency, it is crucial that you have a clear understanding of all the associated risks: https://shorturl.at/irERY 

Past performance is not a guarantee of future returns. 

Members can only allocate a maximum of 10% of their portfolio to our Carbon Neutral Cryptocurrency Fund. 

Kōura Wealth is the issuer of the koura KiwiSaver Scheme. View our PDS at kourawealth.co.nz/documents