Market index returns

Month to date since February 29, 2024 as of March 31, 2024

Index definitions: Global Real Estate = FTSE EPRA/NAREIT Developed Index; Global Infrastructure = Dow Jones Brookfield Global Infrastructure Index; Natural Resource Equities = S&P Global Natural Resources Index; Commodity Futures = Bloomberg Commodity Index; TIPS = Barclays US TIPS Index; Global Equities = MSCI World Index; Real Assets Index = 30% FTSE EPRA/NAREIT Developed Index, 30% Dow Jones Brookfield Global Infrastructure Index; 15% S&P Global Natural Resources Index; 15% Bloomberg Commodity Index, 10% Barclays TIPS Index. Source: Bloomberg, DWS. Past performance is not indicative of future results. It is not possible to invest directly in an index.

• Global equities rose in March and are now on a streak of five consecutive months of positive returns. As global equity markets continued their advance, major indices in the U.S., Europe, the UK, and Japan hit fresh all-time highs. Uncertainty and volatility around inflation and economic growth expectations have done little to dent the aggregate upward momentum, which is being driven by secular themes (e.g. AI) and expectations that central banks will start lowering rates this year. The U.S. Federal Reserve (Fed) seemingly remains on track to start easing mid-year, with the most recent dot plot holding projections for three rate cuts this year and Chairman Powell deemphasizing the recent higher inflation prints, which initially prompted more investor enthusiasm. This optimism has so far failed to carry into April as longer-term interest rates (real and nominal) are on the rise again, weighing on many asset classes. However, we would note Commodities and Natural Resource Equities are off to a strong start in the early days of the new month. For a more extensive recap of March, check out our deep-dive commentary by clicking the button above.
• Why it matters: The U.S. economy remains strong, but markets are sending some conflicting signals. This week, the U.S. 10-year Treasury yield touched 4.4% for the first time this year, yet spot prices for Gold broke through $2,300/oz. These two metrics typically hold an inverse relationship, implying that something may have to give. It appears the U.S. will avoid recession for another year, with risks shifting to fewer or maybe even no rate cuts this year. A recovery in Europe looks to be under way, and there have been some improvements in Chinese manufacturing data, which could be signaling the start of a recovery for them as well, though issues remain in their downtrodden property markets. Geopolitical concerns persist, with conflicts in Ukraine and the Gaza Strip still underway and a very tense situation between Israel and Iran following a missile strike on the Iranian embassy in Syria. We also have a presidential election in the U.S. later this year, where the outcome could have profound effects on a variety of asset classes as well as domestic policies and foreign relations.
• Macro Dive: This week we review recent Personal Consumption Expenditure (PCE) data and how it may impact the Fed’s thinking on rates. We then recap continued robust employment data in the U.S. We shift overseas to look at recent inflation data in Europe and its impact on the ECB’s decision making. Finally, we conclude with long-term return forecasts from the DWS Research Institute for a variety of asset classes.
  • No surprise in PCE data: The most recent Core Personal Consumption Expenditures index (Core PCE), excluding volatile food and energy, increased 2.8% on a 12-month basis and was up 0.3% from a month ago, matching estimates. Headline PCE (which includes food and energy costs) rose 0.3% for the month and 2.5% for the 12 months, roughly in line with estimates of 0.4% and 2.5%. Consumer spending, a bellwether of the US economy, impressed, rising 0.8% on the month, well ahead of the 0.5% estimate. Personal income increased 0.3%, slightly softer than the 0.4% estimate. While the Fed looks at both measures when making policy decisions, Core PCE is considered a more reliable gauge of longer-term inflation pressures. We note the Fed’s long term annual inflation target is 2% and Core PCE inflation hasn’t dipped below that level in three years.
  • Smoking hot jobs report may tilt Fed’s hand: Not only did nonfarm payrolls add 303k jobs in March, the highest in almost a year and smashing estimates (consensus view was 214k), the U.S. unemployment rate also improved falling 10 bps to 3.8% from the month prior. Additionally, the prior two months were upwardly revised by 22k jobs. Job openings also remain elevated with the JOLTS report earlier in the week showing 8.8M openings, a touch ahead of estimates and roughly in line with January’s print, which was revised down a tad. Initial jobless claims ticked up to 221k this week, but remain at benign levels, while continuing claims dropped to 1.79M. Given that employment and hiring trends are showing no signs of slowing down, the Fed may be forced to reconsider when they can start their easing agenda and prevent inflation from reigniting. Markets have taken note with Fed Funds futures markets pushing back on rate cut expectations with only a 50% chance of a cut during the June meeting.
  • Are we there yet?: Euro-area core inflation eased again, but stubborn services inflation may influence timing of the first ECB rate cut. According to the latest figures from Eurostat, March 2024 inflation in the euro area came in slightly lower than expected. Inflation fell by 20 bps to 2.4% year-on-year, better than consensus forecasts of 2.5%, and down from 2.6% in February. Encouragingly, at the individual country level, prices eased in the two biggest economies, Germany and France. As our DWS CIO team notes, two things are remarkable about this data: First, food prices are rising much more slowly. Second, the core rate fell below the 3% mark for the first time since February 2022. However, service prices rose for the sixth consecutive month in a row. This may remain a concern for the European Central Bank (ECB) as service prices – which include everything from movie tickets to accommodation and healthcare – are strongly driven by wage growth. All in all, the latest inflation data does not suggest any change in the ECB’s policy at its Governing Council meeting next week. The key interest rate of 4% is likely to be reaffirmed in April by the ECB, but the prospect of a first rate cut in June would be in line with our (and the market’s) forecast.
  • Playing the long game: DWS recently released its return outlook for the next decade for a variety of asset classes. After exceeding expectations in 2023 (thank you AI and the ‘Great Eight’), not surprisingly DWS’s long term return forecasts are modestly lower than a year ago. Valuations across equity and credit markets are modestly more demanding. Looking forward, forecast fixed income nominal returns still look robust versus the previous decade driven by higher current yields. Despite modest compression in forecast equity returns, things still look quite constructive with nominal returns in the low-mid 6% range per annum for U.S. and European equities. Elsewhere, we’d be remiss if we didn’t highlight listed infrastructure, which is expected to be a bright spot over the next decade. In fact, amongst 24 major equity, fixed income, and alternatives asset classes, U.S. listed infrastructure occupies the #2 spot with a forecast return of 7.8% per annum, and global listed Infrastructure is #3 at 7.5% per annum. After a challenging few years, there looks to be light at the end of the tunnel. Headwinds from higher rates are finally abating, fundamentals are sound, and attractive valuations create an environment for infrastructure to perform strongly, in our view. To learn more about DWS’s return outlook over the next decade check out our recent paper here.
• Real Assets, Real Insights: First, we review some recent large industrial real estate portfolio transactions, before looking at some of the current dynamics in the crude oil market that are already having an impact on buyers, and then conclude with our take on the energy transition.
  • Industrial joins the transaction party (Real Estate): As we flagged last week, the pace of real estate transactions involving public and private players in the Americas is indeed picking up. We previously highlighted activity within Hotels, Retail, and Manufactured Housing. This week it was Industrial making headlines. Industrial REIT Rexford (NYSE: REXR)* announced a $1 billion, 3 million square foot portfolio acquisition from multiple Blackstone entities. The 48-asset portfolio is 98% leased and 99% within their core infill Los Angeles and Orange County markets. This transaction was funded with an announced $1.15 billion of convertible notes offerings (in two trenches) along with a private forward equity placement of up to $840 million with Capital Group with excess proceeds being earmarked for additional redevelopment spending and general corporate purposes. Similarly, fellow Industrial REIT Terreno Realty Corp. (NYSE: TRNO)* announced an upsized $392 million overnight equity offering (assuming overallotment) to help fund a $365 million 28-asset, 1.25 million square foot portfolio within their core New York/New Jersey, San Francisco, and Los Angeles infill markets at a 4.8% stabilized cap rate (5.7% at current market rates) in addition to other acquisitions in their growing pipeline.
  • Crude oil bubbling up (Commodities): With Brent crude hitting USD 90 per barrel for the first time since October 2023, it is important to pay close attention. There was no shortage of news in the oil patch this past week. A rally backed by solid demand and OPEC+ cuts has been extended by signs of escalating tensions in the Middle East. An OPEC+ committee kept oil supply policy unchanged this week, keeping 2 million barrels offline through at least June. The next OPEC+ meeting is set for June 1. Meanwhile in the US, amid high prices, the Department of Energy canceled two major purchases to refill the Strategic Petroleum Reserve (SPR) – which Congress established for emergency situations — a signal that the Biden administration may slow or pause replenishment of the reserve as oil prices rise. What does this all mean? As the DWS CIO team notes, rising geopolitical risk premiums amid Middle East tensions are adding to a combination of positive price drivers including OPEC+ supply cuts and budding optimism over a Chinese economic recovery. Therefore, when it comes to the question of how stubborn inflation will be in the coming months, the black gold is an important factor to watch.
  • The Energy Transition (Real Estate, Infrastructure, & Natural Resources): With the world witnessing ever-increasing demands for energy while simultaneously grappling with environmental challenges, novel solutions will be needed to confront these issues. At its core, the term “Energy Transition” signifies a shift away from traditional fossil fuels toward cleaner and more sustainable energy sources. Although this transition won’t occur overnight, it is already underway and Real Assets—such as real estate, infrastructure, and natural resources—are playing a pivotal role in this transformation, with some areas directly benefiting from the changes in the energy landscape. Throughout this process, dispersion will increase as winners and losers emerge, with companies forced to adapt to achieve global decarbonization objectives. Such divergence can create opportunities. For instance, in the real estate sector, empirical evidence suggests that energy-efficient buildings (especially those with specific certifications) not only command higher rents but also experience increased asset values compared to their less efficient counterparts. To delve deeper into this topic and explore our perspective on the relationship between the Energy Transition and Real Assets, please check out our recent whitepaper here.

*As of the date of this publication, DWS owns shares of TRNO, but does not own shares of REXR. Any mentions of specific properties or securities are for illustrative purposes only and should not be considered a recommendation.