“The S&P 500 is on track to deliver its best first-quarter return in five years,” says AJ Bell investment analyst Dan Coatsworth. “At 5,254, the index has risen 11% this year. The last time it beat this amount was the 13.1% return seen in the first quarter of 2019.
“Investors have piled into US shares in recent years as the market is home to some of the world’s biggest technology names, which have enjoyed stellar earnings growth. It’s also helped that the US economy has been fairly resilient.
“Anyone who took the view that US equities would extend last year’s strong run have been vindicated given the decent showing this year.
“Despite suggestions that US shares are considerably more expensive relative to UK ones, investing in the US has been a winning strategy given how the FTSE 100 is only up 3% year-to-date and the S&P has delivered more than three times that amount.
“The Nasdaq Composite is on track to return 10% in the first quarter of 2024. That’s not as good as the 16.8% return in Q1 2023 but better than the three previous years.
“The Nasdaq is heavily concentrated in the tech sector and tech names were the driving force for US equities last year. This year has seen broader gains across the market, with telecoms, industrials and financials notable places where investors have made money.
“Investor sentiment has improved over the past six months thanks to growing expectations for central banks to cut interest rates. Investors have been happy to take greater risks, partly influenced by cash savings rates trending lower, which has driven more people to equities in search of better returns.
“This confidence has helped to drive up valuations but also raises the prospect that markets could find it harder to keep rising if inflation proves stickier than expected and we don’t get the Fed’s monetary policy pivot any time soon.
“The date at which the Fed is expected to start cutting rates has already been kicked down the road, and further setbacks on this front could easily stop equities in their tracks. But for now, sentiment is strong and investors are upbeat and so the market juggernaut is trucking on.”
How first quarter US and UK market returns compare
Source: AJ Bell, SharePad. 2024 figures based on market data as of 2pm, 28 March 2024 UK time.
Source: AJ Bell, SharePad. Based on market data as of 2.25pm, 28 March 2024 UK time.