SPW MarketWatch: January 2024

Source: FactSet, 2 February 2024. Figures are monthly price returns in local currencies for January 2024.

ChatGPT helps Microsoft edge past Apple

The battle to be the biggest company in the world was very closely fought in January, as Microsoft challenged Apple for the top spot. At the time of writing, Microsoft has edged ahead, with the total value of all its shares amounting to $3.1 trillion (£2.5 trillion), versus Apple’s $2.9 trillion (1).

Microsoft is the biggest investor in OpenAI, which owns AI chatbot ChatGPT. Microsoft has benefited from ChatGPT’s popularity in a period when sales of Apple’s products have weakened (2).

Research from Schroder Investment Management (SIM) shows the ten biggest stocks in the index of the 500 largest US company shares (equities) comprised a record 31 percent of the market in October 2023. They also made up nearly 18 percent of global equities. These stocks include Microsoft and Apple.

SIM’s research shows a ‘passive’ investment approach that simply aims to replicate global stock markets can perform relatively poorly after periods when the market has high concentrations in a few companies. One of the key principles of Schroders Personal Wealth (SPW) is to take an active, rather than a passive, approach to investment.

At SPW, we currently have a neutral stance on US equities, as we believe a slowdown in the US economy has become more likely in the medium term. We similarly have a neutral stance on global equities.

Oil price rises on Houthi attacks

Oil was the only asset in our markets dashboard (see above) to rise substantially in January. This was caused by attacks on vessels in the Red Sea by Iranian-backed Houthis, as the Israel-Hamas conflict widened.

The Red Sea offers a route into the Mediterranean from the Arabian Sea. Following the attacks, many oil tankers were diverted around the southern tip of Africa, a longer and more expensive journey. This added to the cost of oil.

At Schroders Personal Wealth we retain a neutral stance on oil. We expect demand for this commodity to fall but we believe the supply of oil will be sufficient to meet this lower demand. Even so, we have a positive view of commodities as a whole, due to our positive stance on gold. We anticipate demand for the precious metal to come from central banks and the Chinese domestic market.

Record sales of US corporate bonds

A record $153 billion (£121 billion) of high-quality, investment grade US corporate bonds was issued during January, according to the London Stock Exchange Group (3).

Corporate bonds are IOUs (debt) offered by companies. This record issuance came as borrowers appeared attracted to the lower interest costs currently payable on bonds. Interest payments on corporate bonds have fallen since late 2023.

Meanwhile bond investors appeared keen to buy new bonds before the US Federal Reserve’s expected interest rate cuts later this year. Bond prices often rise when interest rates fall.

At Schroders Personal Wealth, we currently have a cautious stance on corporate bonds but a neutral view of government bonds. Crucially, we note that corporate prices have not fallen as steeply as government bond prices.

Sources:

(1) FactSet, 5 February 2024.

(2) Apple, Report for the quarterly period ended 1 July 2023, 4 August 2023.

(3) Financial Times (FT.com), ‘Companies rush to bond market in record $150bn debt splurge’, 21 January 2024.