Investing & Performance | 8 February 2024


Despite a shaky start to the year, strong market data and rallying technology sector grew investor confidence.


High-performing technology stocks and rising hopes about the US economy have helped markets get back on track after some turbulence at the start of the year. And with inflation easing and threats of a downturn receding, the overall market mood remains positive.

The US economy continues to defy fears of a slowdown, with economists increasingly optimistic about a so-called ‘soft landing’ for the economy, where a recession is avoided and inflation gets back to target. The US jobs market showed unexpected strength in December, with employers adding 216,000 jobs, while the unemployment rate was unchanged at 3.7%, according to the US Department of Labor.

Inflation ticked up slightly in December, but US core inflation, which strips out more volatile food and energy, continued to slow.

More importantly, the US Federal Reserve’s (Fed’s) preferred inflation measure – the Personal Consumption Expenditures (PCE) Price Index – fell to 2.9% from 3.2%, the lowest it’s been since March 2021. While the Consumer Price Index (CPI) measures the cost of various goods, the PCE Price Index takes into account how much households are actually spending and what they’re spending it on.

Despite this encouraging data, the Fed continued to hold rates in January. And Chairman Jerome Powell managed investors’ expectations about rates coming down in March by saying it wasn’t the “base case”. Markets still strongly expect US interest rates to start falling this year though.

Meanwhile, in China, markets are struggling in the face of a slowing economy, worsening disinflation and property market turmoil.

Lilian Chovin, Head of Asset Allocation, Coutts, says: “Emerging markets are struggling as a result of China’s economic woes – so we expect to see some government stimulus there. But so far developed markets have managed to avoid any fallout and haven’t been affected.”


The improving global macroeconomic environment could offer more opportunity in 2024 with expectations of resilient growth, moderating inflation and easier monetary policy. With this in mind, we made some recent changes to our portfolios.

We’ve added to our exposure in global equities, increasing our overweight position compared to benchmark. We also took profits from some of our long-duration US Treasuries which have performed well since we invested in October last year.

We still remain cautiously optimistic about the economic outlook. In response to signs of the economy improving, we shifted our focus more towards potential opportunities at the end of last year, while remaining well-positioned to ride out any volatility.

Some further highlights of our current positioning include:

  • our minimal exposure to China via emerging market funds means our portfolios have avoided much of the turmoil caused by its economic challenges
  • we’ve strengthened our portfolio diversification by adding gold, which should offer greater protection against the possible risks of resurging inflation and geopolitical tensions
  • our investment in longer-term bonds has benefitted from anticipated interest rate cuts
  • we added to our position in high yield corporate bonds in December, which typically perform well when the economy is expanding.

The value of investments, and the income from them, can fall as well as rise, and you may not get back what you put in. Past performance should not be seen as an indication of future performance. You should continue to hold cash for your short-term needs.


High yield bonds are a type of corporate debt that could offer higher returns but is seen as riskier. Their issuers have a lower credit rating as they’re considered to have a greater chance of missing repayments (also known as defaulting).

One of the biggest advantages of high yield bonds is the potentially higher income they could generate when compared to investment grade bonds. This is because companies issuing lower-quality bonds offset the heightened risk of default by providing higher yields to attract investors.

As they are issued by companies, they behave more like equities (but are not as volatile), making them more susceptible to market fluctuations driven by good or bad news. But they also tend to be less sensitive to interest rate rises than investment grade bonds.

So why do we currently like high yield bonds at Coutts? The strength of the US economy and the growing possibility of a soft landing currently make them attractive. High yield bonds often perform well in an improving economy due to reduced default risks.

Our high yield bond exposure is through a fund made up of short-dated US and European bonds. This offers diversification benefits and limits interest rate sensitivity.



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