The start of the year has seen the market pick up from where it left off in December, shrugging off macro and geopolitical concerns to stage an impressive equity rally as investors remain confident central banks will cut rates this year. Technology in particular has turbocharged this rally as excitement continues to build surrounding the potential transformative impacts of AI which has led to the Magnificent 7 leading from the front as the S&P 500 reached all-time highs at the start of the year. Taking a step back, there are still several macro questions lingering from the end of the year that are yet to be resolved, namely if/when central banks will begin to cut rates after a series of rapid hikes in 2023. After the late rally in rates towards the end of 2023, investors have pared back expectations as to how aggressively central banks will cut rates this year, and as a result sovereign bonds have experienced modest negative returns since the start of the year due to the repricing of duration. Even so, the consensus remains that the Federal Reserve (“Fed”), European Central Bank (“ECB”) and Bank of England (“BoE”) are likely to cut rates later this year, although there is less clarity with regards to the pace of these cuts.
