Global equities have delivered strong returns so far this year largely driven by the US market notably the large tech stocks, supported by strong corporate earnings, subsiding inflationary pressures, and anticipated artificial intelligence productivity enhancements.
The macro environment has supported riskier segments of the fixed income market with US and European high yield bonds being the top performing sectors, supported by strong coupon payments and the benefit of being less sensitive to the moderately higher sovereign yields experienced in Europe and the UK.
The election cycle continued to dominate the global landscape with the first US presidential debate taking place and incumbent parties retaining power in Mexico, India, and South Africa the latter two losing their parliamentary majorities and entering coalitions. The UK’s opposition Labour Party won a huge parliamentary majority in the general election on 4 July. In the European Parliamentary election, there was a shift to the right, while President Macron’s decision to call a snap parliamentary election in France was a major surprise with the results of the second round of voting inconclusive.
Several developed market central banks began their easing cycles in June including the European Central Bank and the Swiss National Bank. Conversely, the US Federal Reserve and Bank of England left their interest rates unchanged but both suggested that they were still likely to move rates lower this year. Updated interest rate projections from the US were more hawkish, showing just one cut in 2024. Meanwhile, the Bank of Japan’s ultra-loose policy stance was unchanged.
US GDP estimates continued to suggest another quarter of solid economic growth, with retail sales and industrial production expanding in May. While US inflation continued to cool, economic momentum in general remained positive and equity markets were buoyant as valuations remained high among mega-cap tech stocks. Some cracks appearing in the US consumer data led investors to be slightly more hopeful for policy easing. Markets expect two interest rate cuts from the US Federal Reserve Bank by the end of the year.
European stocks lost ground in June but still delivered a positive quarter. Eurozone inflation remains well above the European Central Bank’s (ECB) 2% target and wage pressures continue to drive inflation fears. Despite this, the ECB cut interest rates arguing that it was still far from a neutral rate and needed to spur the economy. The political implications of the French elections may add to market volatility.
Improving economic conditions in the UK helped the FTSE All Share Index deliver positive returns in June. Encouragingly, UK headline inflation fell to the Bank of England’s 2% target. Strong wage data plus a forecast of reacceleration in inflation meant the Bank of England kept interest rates on hold, however, there is still the possibility of an interest rate cut in August. Yields rose and UK Gilts (government bonds) delivered negative returns over the second quarter.
In China, investor sentiment and consumer spending remain muted however government stimulus efforts to support the real estate sector provided a boost to the stock market. Taiwan, with its dominant technology exposure, was the leading Asian market while India recovered in June after the surprise election results. Emerging market equities outperformed their developed market counterparts during the second quarter.
Resilient economic activity has fed through into resilient corporate earnings and strong performance from equity markets. While this continued economic resilience has negatively impacted government bonds in the short term, the next move for the major developed market central banks is to ease policy rather than tighten which points to an attractive medium-term outlook for fixed income assets.
| Market Performance | 2024 Year to Date |
| FTSE All-Share | +7.43% |
| FTSE World ex-UK | +12.70% |
| FTSE Actuaries UK Conventional Gilts All Stocks | -2.49% |
| FTSE Actuaries UK Index-Linked All Stocks | -3.86% |
Total returns in GBP to 30/06/2024
| Key Rates | |
| Bank of England Base Rate | 5.25% |
| Inflation (Retail Price Index/Consumer Price Index)* | 3.00%/2.00% |
*May 2024
Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk The content contained in this article represents the opinions of MacIntosh & James Partners Ltd. The commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.
