The bulls took Q1 of 2024, but are the bears about to get the last laugh?

The first quarter of the year is now firmly behind us – and what a quarter it was for stocks. There was a strange optimism in the market which was focussed on the idea that inflation was in retreat and Central Banks around the world were going to start cutting rates imminently.

At the end of last year, the interest rate market was pricing in around 5 cuts of 25 basis points each (1.25%) during 2024. This sparked the historic rally going into the end of the year. It faltered briefly in January, but this wobble was soon beaten away by more rallying cries.

Sometimes we see market moves that are hard to explain. This major rally was led by the idea that AI is here and it’s going to change everything. Big tech stocks were bought as though they were going to runout and this sparked a FOMO rally which just escalated into a buying frenzy.

Nvidia, whose semiconductor chips are in heavy demand for use in training AI models, has perhaps had the brightest spotlight. Its stock price rose 82.5% in the first quarter, bringing its 12-month gain to north of 225%.

Nvidia wasn’t alone in its remarkable rally. The “Magnificent 7” as a whole have once again come under the spotlight for their outsized impact on overall market performance. While Nvidia and Meta continued their impressive runs in Q1 with returns not all Magnificent 7 stocks performed well.

Apple fell 11%, and Tesla fell almost 30%. In a further departure from 2023, the first quarter saw an impressive breadth in positive returns. In the S&P 500, 7 of the 12 sectors had returns of 9% or more, with 383 of the S&P 500 stocks seeing positive returns.

European stocks also experienced a strong first three months of the year, with the Euro Stoxx 600rising 7.9% in the quarter.

The FTSE 100 posted strong performance in March, benefiting from rising commodity prices, but only rose 4%in the quarter.

In the UK, Chancellor Jeremy Hunt’s spring budget was a non-event, despite Conservatives using it as a platform to entice their electorate. The UK economy is poised to recover as headline inflation fell to 3.4% in February and is forecast to fall closer to 2% in the second quarter, which should pave the way for the Bank of England (BoE) to begin its own interest rate cutting cycle. 

Turning to emerging markets, the MSCI index only rose about 2.1%. The main detractor to performance was ongoing challenges in the Chinese equity market. China comprised over a quarter of the index and was down over 2%. On the brighter side, India and Taiwan carried forward their 2023 results into the first quarter of 2024 with positive returns of 6% and 12%.  

TPP’s Q1 Strategy performance

Due to the market rallying, our trackers and long/flats have outperformed.

The leveraged TPP S&P 500 tracker led the way returning a whopping 15.9% on the quarter. Sometimes the market goes up, even when we think it should be going down. When that happens, the only way to make those gains is with a long term tracker.

Even though we are active traders ourselves, we’re huge fans of the buy and hold strategy – perhaps not on its own but as a cheaper option alongside a diversification of other TPP strategies.

Having at least one long term passive strategy is great for long term gains as long as you can weather the occasional storm.

Our leveraged trackers will always outperform standard passive trackers in terms of percentages; yes, of course this works both ways as when the market drops, our trackers drop more, but the very point of a tracker is a long-term investment that endures the downs, to take advantage of the ups over the years.

The S&P 500 has returned over 12% on average over the last 10 years. That means over that same period, our own tracker would have returned around 20% annualised.

The FTSE 100 was up around 4% on the quarter, but our leveraged FTSE tracker was positive by 5.6%.

If you believe in ‘time in the market’ and not ‘timing the market’ then have a tracker. On TPP you can have multiple strategies all working away simultaneously to create the best returns possible.

Have a tracker, but then have a long/flat to work alongside it. Diversification is always key to a portfolio and our long/flats will be in the market as long as possible but liquidate and move to cash when they think the time is right.

A great example of this is one of our most popular strategies: Cambridge Futures. This strategy has beaten its market benchmark (FTSE 100) every year since joining our platform in 2020.

In Q1 2024, TPP’s Cambridge Futures returned 9% compared to the 2.84% return on the FTSE.

For anyone out there thinking that some of this will have been given back in April, Cambridge Futures is actually now up 12.2% on the year compared to the 1.59% on the FTSE (as of mid morning on the 16th April 2024).

This is the nature of these strategies. Of course, they won’t miss all the drops, but just missing some of them and then leveraging the rallies is a strategy that works well over time.

Another strategy that performed well was the Micro Dax/Dow which posted a very respectable 7%. This trade aims to take advantage of either the Dax in Germany or the Dow Jones Industrial Average, whichever looks like it will provide better mid-term value.

Our CAC long/flat was also up in Q1. Not quite as much as most but a solid 5.5% in the three months up to April after an incredible 2023 in which the strategy posted are turn of 21.6%.

The slight disappointment on our platform in Q1 was our active strategies. A majority of these have been short the market. Many economists have struggled to understand why investors would be buying stocks given everything that is going on in the world, as have our active traders.

Many technical indicators suggested the market was overbought towards the end of last year. Certainly, many analysts would concur.The one thing you can’t always take into account though is ‘buying fever’ that tends to hit the US from time to time. The big tech companies led the way and this rise in stocks hurt many of our active short trades.

Q2, however, looks likely to tell a very different story.

It feels like all the excitement at the end of last year about 2024 being the year of interest rate cuts has dissipated somewhat. Every month expectations get lower and lower. Market pricing has changed significantly, but stock buyers have so far dangerously chosen to ignore this throughout the quarter.

Here is a simple illustration of how those predictions have decreased since the start of the year:

What we can see here is just how much the number of cuts has been reduced. The market is predicting that the 3 central banks will move in a similar fashion. However, we aren’t so sure. The Bank of England will have to move quicker than the Fed and to us, this chart doesn’t look steep enough. But what we are looking at overall, isn’t about who moves first or fastest, but the overall move in rates throughout the developed world during 2024 and 2025. 

The graph is now shallower, much shallower, yet as we have pointed out, so far the market has ignored this.

With oil prices now on the rise, inflation could well prove not only ‘sticky’ but may actually start to increase again. The Fed referred to ‘bumps in the road’ but they might soon find themselves on the wrong road completely.

With recent geopolitical tensions rising in the Middle East, the Russia/Ukraine conflict showing no signs of cooling, and Chinese/Taiwan tensions resurfacing, it is hard to see how US optimism around stock buying can continue.

Iran is now very much at the forefront of the Middle East conflict, and there is no putting that back in the box. Things can surely only get worse.

The decision by Iran’s leaders to strike at Israel directly has pushed the shadow war between the two regional foes into the open. Israel is being urged by Western allies to de-escalate, as fears grow of an all-out regional war, a scenario Washington has sought to enlist Beijing’s help to avoid. The bulk of the weapons launched by Iran in the highly choreographed attack were intercepted by Israel and its allies.

This was a carefully measured response, and they must have realised it wouldn’t have a major impact. Doing nothing however was not an option. Any further escalation now from Israel, would be very dangerous.

We are all hoping that the situation de-escalates. But with inflation in the US returning, and geopolitical tensions creating a mass of uncertainty all round the world, it is hard to see how stocks have a positive Q2, and if that is the case we expect this is where you will witness real value from TPP.

Our leveraged trackers are a great long-term play. They will outperform global markets year on year.

Our 'long or flats' are proving very popular, as not only will they perform well in bullish market climates, but they may also look to be 'flat/market neutral' when markets fall. Their track records suggest that not only do they outperform global stocks, but they often tend to be less volatile as well. A great addition to any portfolio.

The biggest underperformers as of late have been our active equity long/short strategies, but if the markets fall in Q2, they will be very well positioned to take advantage, and there aren't many wealth managers out there who make money as markets fall.

Our active strategies tend to be the best performers over the longer term, but they take on more risk, trade in multiple directions, and are generally more aggressive.

We think they should be used as a 'speculative edge' for one's portfolio, but for those who have them as more than 'the icing on the cake' - a market reversal would become very profitable.

If they can recover their form in Q2 (early signs are promising) then as an overall platform – we should be in a very good place.

Unlike a wealth manager who has just one strategy (buy, hold and do nothing), TPP has 3 and combined together they build a market-beating portfolio. We won't be right every week, month, or quarter on every strategy, but if you build a diversified portfolio, we expect it will be robust, and will aim to perform regardless of the climate.

Good luck for Q2 and please do contact our team if you would like to discuss your portfolio composition.