Market Commentary – Quarter 3, 2024

We generally recommend that you hold investments for the medium to long-term. This market commentary provides an insight into the current factors that are affecting short-term global returns, but should not be viewed as a basis for making long-term investment decisions. You should consider your own investment goals and timeframes before making any such investment decisions.

Introduction

Global equity markets broadly finished the third quarter of 2024 higher, but this masked several periods of significant volatility. In particular, early-August saw a sharp sell-off in equity markets – this was due to a combination of weaker US employment data, an interest rate increase by the Bank of Japan and the usual thin summer trading activity.

In particular, the Japanese interest rate rise caused the yen to strengthen and in turn, an abrupt unwinding of trades that were reliant on cheap Japanese borrowing costs.

Away from the Bank of Japan, interest rates moved in the opposite direction:

• US Federal Reserve: Having left interest rates unchanged for 14 months, the US Federal Reserve announced a 0.5% cut in September. This was in reaction to weaker jobs data, whilst signalling they did not want to see any further weakening in the economy.
• Bank of England: Following a tight 5-4 vote, the Bank of England announced its first rate cut of 0.25% to 5% in August .
• European Central Bank: The Bank delivered a second 0.25% reduction in September.

The end of the quarter also saw China announce new stimulus measures that has boosted investor sentiment.

 Market Performance – 3^rd Quarter 2024

CR = Capital return; LC = Local currency

Source: Lipper for Investment Management

Past performance is not a reliable indicator of future performance

UK Equities

Overall, UK equities rose in the third quarter. The start of the period saw a boost from the landslide Labour general election victory that fuelled hopes for a sustained recovery in the economy. There was further support from the Bank of England’s first interest rate cut for four years on 4 August. However, warnings from the new Prime Minister Keir Starmer over a “painful” Autumn Budget amid a £22 billlion shortfall in public finances did offset some of this positive sentiment. During the third quarter, the more domestically focussed mid-cap FTSE 250 outperformed the large cap FTSE 100, with notably stronger returns at the start of this period.

Global Equities

• US S&P 500 Index (measures 500 of the largest US companies) – ended the period with a strong positive return, despite the volatility in early-August as the weaker job data led investors to fear the Federal Reserve had left it too late to cut interest rates. However, resilient corporate earnings provided support, as did the rate cut, whilst there were signs of a “broadening out” of sector returns.
• FTSE World Europe ex UK Index (measures large and mid cap stocks across Europe) – European markets produced a gain amid sluggish economic data, particularly in Germany. However the prospects of further interest rate reductions saw better performance from previously out of favour sectors such as real estate.
• Nikkei 225 Index (measures Japan’s top 225 companies) – The Japanese Nikkei 225 was an outlier as it ended the quarter with a loss following period of significant volatility. The market had reached a new high early in the quarter, but the Bank of Japan’s rate hike and weak US jobs data resulted in a sharp decline, although subsequent reassurance from officials helped partically offset some of these losses.

Asia and Global Emerging Markets Equities

• MSCI Asia ex Japan Index (measures the performance of over 1,000 companies across Asia) – Asian markets posted a strong gain following a robust rally at the end of the quarter, after Chinese policymakers announced a range of new stimulus measures. The various measures boosted investor sentiment amid hopes that Beijing would support the Chinese economy and markets. Most Asian regions ended the quarter higher, with China among the strongest performers.
• MSCI Emerging Markets Index (covers over 1,200 stocks from across 24 emerging markets countries) – Global Emerging Markets also recorded robust gains, similarly boosted by the Chinese stimulus announcement as well as the cut in US interest rates.

Fixed Income

• FTSE Actuaries UK Conventional Gilts Index (as shown by UK gilts) – The change in investors’ expectations for interest rates contributed to decent gains from government bonds. There was better performance from US Treasuries, with the tighter labour market and elevated wage growth in the UK meaning the Bank of England may be more cautious over the pace of future rate cuts. There was also strong performance from corporate bonds.

 What does this mean for your investments?

The recent market volatility and interest rate changes highlight the importance of staying informed about your investments.  Given the changes in interest rates and market performance, it might be a good time to review your investments to ensure they align with your financial goals and risk tolerance.

If you would like to discuss how these developments might affect your investments, please call the Aegon Financial Planning team on 0800 464 3079*.

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