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Our monthly portfolio positioning commentary.
July was a volatile period for equity markets. Weaker economic data from the US including inflation, employment reports and the manufacturing / services surveys led to increased anticipation that the US Federal Reserve is likely to cut rates at the September meeting. Additionally, we saw corporate earnings results surprise to the downside for some companies, which drove some underperformance within equities and the Magnificent 7, which have driven positive market performance so far this year
June saw mixed performances for financial markets, with US equities continuing to increase, aided by the the continued performance of the “Magnificent 7”. Emerging Market equities were slightly up over the period, driven largely by India and Taiwan’s strong performance . However, in Europe, we saw political developments come into focus with European parliamentary elections and snap legislative elections in France, which caused a subsequent fall in European equities.
The economic outlook continued to improve in May, which generally supported risk assets. Investors are more optimistic despite interest rates remaining high, as the path for future interest rates cuts became clearer.
Generally, developed equity markets outperformed emerging markets. The top performing markets being the US, Europe and the UK.
On the whole, global bonds made a positive return, but there was again regional divergence, with yields having risen in Europe despite expectation of an interest rate cut in June. Yields fell in the US, which produced a positive capital return.
April was generally a disappointing month for markets as investors started to reassess the likelihood of US interest rate cuts this year. The US continues to have a robust labour market and inflation numbers remain higher than expected. This meant that most developed market equities fell in April, with the exception of the UK market, which rose. However, emerging market equities, including China, produced positive returns in April. Bond prices came under renewed pressure in the month as yields rose.
Most global equity markets had a strong start to the first quarter of 2024, on the backdrop of an improving economic picture. The US led the way, as its economy remained resilient and unlikely to enter recession, thus on course to achieve the “soft landing” policy makers have been hoping for. Furthermore, Artificial Intelligence stocks continued to boom.
However, expectations for interest rate cuts have changed from the start of the year, to the end of the quarter, with fewer cuts now expected and for these to be later in 2024. These expectations meant that global bonds yields rose, prices fell and global bonds posted negative returns.
February saw mixed performance within markets, as equities broadly delivered positive returns whilst bonds finished the month down as continued economic resilience delayed expectations of interest rate cuts by the Central Banks.
Developed market equities in particular continued their 2024 rally, being supported by the continued strength of the US economy and signs of an uptick in European economic activity. The Chinese equity market also rebounded following supportive interventions from the Chinese Government, which also benefitted broader Emerging Market Equities.
Interest rate policy continued to drive markets in January, with regional differences now being noticeable. In emerging markets, interest rates have already started to be cut, which has been positive for bonds, but not equities, which fell in January. Furthermore, emerging market equities were dragged downwards by China, where investor confidence remains weak.
In developed markets, the expectation of forthcoming interest rate cuts has been delayed by the release of robust economic data. This has led to bond yields rising and prices subsequently falling. However, unlike emerging market equities, developed market equities posted positive returns.