The economic momentum from the first quarter of 2024 continued into the second, resulting in another positive period for equity markets. Initial concerns over central bank rate cuts due to strong April data eased, reviving hopes for a soft landing. Inflation in the services sector remained a concern, reducing expected rate cuts by Western central banks. U.S. equities performed well, with the S&P 500 up over 15% YTD, led by larger companies, while small caps and REITs lagged. Fixed income investors faced negative returns, with global investment grade bonds down 1.1%. AI-related stocks and U.S. tech companies drove global growth stocks’ 6.4% quarterly return. European markets saw modest gains, with UK equities up 3.7%, and Japanese equities led non-U.S. stocks. Despite softening U.S. economic data, the Fed maintained a hawkish stance, and Treasury yields rose slightly. High-yield sectors, supported by resilient corporate earnings, outperformed other fixed income segments. Overall, risk assets delivered positive returns amid economic resilience, with a promising medium-term outlook for fixed income as central banks are expected to ease policies.
Domestic Equities
During the second quarter of 2024, the major U.S. stock indices exhibited varied performance. The S&P 500 rose by 3.5%, the Nasdaq Composite surged by 9.1%, and the Dow Jones Industrial Average posted a modest gain of 0.5%. This period saw significant contributions from large-cap technology stocks, particularly those involved in artificial intelligence (AI), which propelled the Nasdaq to its strong quarterly performance.
Market sentiment during the second quarter was influenced by mixed economic data and the Federal Reserve’s policy stance. Inflation data showed the core PCE price index rising by 0.1% in May, aligning with expectations and leading to speculation about future Federal Reserve actions, with a greater than 60% chance of a rate cut in September. The U.S. equity market’s positive performance was also driven by resilient corporate earnings, particularly in the technology sector. However, the broader market gains were concentrated in larger companies, while small-cap stocks and REITs underperformed due to the higher-for-longer interest rate environment.
Despite the significant shift in the trajectory of interest rates leading to higher market rates and exerting some downward pressure, domestic equities posted substantial gains during the first quarter. This broad advance was underpinned by corporate earnings figures that appeased investors and alleviated concerns of an impending earnings recession, coupled with consistently positive economic data that buoyed sentiment. Virtually every sector of the S&P 500 participated in the rally, except for the interest rate-sensitive Real Estate sector, as expectations of higher rates gained traction. Technology and Communications, perennial leaders, performed strongly once again, buoyed by a handful of their largest constituents. They were joined by Financials and Energy, which staged an impressive rebound from the previous quarter, fueled by higher global energy prices. The S&P 500 surged by 10.5%, the Nasdaq gained 9.3%, and the Dow Jones Industrial Average added 6.1% during the quarter.
Notably, economic data played a significant role in driving much of the performance seen in the quarter. Retail sales surged in March, exceeding expectations, and ending the quarter on a very high note. The manufacturing sector also exhibited signs of recovery, with the ISM Manufacturing PMI entering expansionary territory for the first time in nearly a year and a half. Despite a marginal uptick, the unemployment rate remained at a resilient 3.8%, underscoring the strength of the US labor market. Inflation displayed stickiness during the first quarter with the substantial progress made so far stagnating. Headline CPI inched up from 3.4% to 3.5%, while core CPI, excluding volatile energy and food prices, saw a slight decline to 3.8%. The PCE index, the Federal Reserve’s preferred inflation measure, displayed more progress, with the core rate easing to 2.8%.
Foreign Equities
The MSCI ACWI ex-USA index gained 2.8% for the second quarter of 2024.
Eurozone
In Q2 2024, the MSCI Europe ex-UK index posted a modest gain of 0.6%. European markets benefited from improving economic conditions and easing cost-of-living pressures. However, political uncertainties, particularly surrounding the French parliamentary elections, introduced some volatility. Despite these challenges, the economic momentum remained positive, with sectors like technology and industrials showing strong performance.
UK
The UK market (FTSE All-Share) delivered a solid return of 3.7% in Q2 2024. This performance was driven by an improving economic outlook and robust corporate earnings. Significant contributions came from the financial and consumer sectors, reflecting the resilience of the UK economy despite global economic uncertainties.
Japan
The Japanese equity market (TOPIX) saw modest gains of 1.7% in Q2 2024. This performance was supported by favorable corporate earnings and stable economic indicators. Strong performances in the technology and industrial sectors further bolstered the Japanese market, highlighting the country’s economic stability and growth prospects.
Emerging Markets
Asian equities excluding Japan (MSCI Asia ex-Japan) performed strongly in Q2 2024, achieving a 7.3% return. This was led by government support measures in China, particularly for the real estate sector, and robust performance in the Taiwanese stock market due to its exposure to the booming AI sector. The MSCI Emerging Markets index outperformed developed markets with a 5.1% return, driven by strong performances in Asian markets and favorable economic conditions in several large Latin American economies.
Fixed Income
In the second quarter of 2024, fixed income markets experienced moderate declines, turning in a dismal performance for the first half of the year. Initial optimism about a significant global rate-cutting cycle diminished as central bankers hesitated due to economic data, although the European Central Bank did implement its first rate cut in June. This general reduction in dovishness caused rates to edge higher, adversely affecting bond performance. Additionally, election cycles worldwide put pressure on bonds due to uncertainty and volatility surrounding political outcomes. As a result, the Bloomberg Global Aggregate fell by 1.1%
US Treasuries
Despite significant volatility in treasury yields throughout the quarter, with the 10-year yield fluctuating between 4.2% and 4.7%, the benchmark rate ended close to its April 1st starting point. However, there was a steepening of the yield curve at the longer end, suggesting economic and political uncertainty. With no major surprises in economic activity or inflation during the quarter, the Federal Reserve reduced their rate cut expectations at their June meeting, lowering the forecast from three cuts to just one. The “higher for longer” narrative appears to prevail, indicating a cautious approach to policy easing by the Fed. The Bloomberg Intermediate Treasury Index rose by 0.6%.
Corporate Credit
Credit investors were not immune to the fixed income market volatility experienced by treasuries resulting in a mixed performance for the second quarter. Credit spreads, which measure the additional risk of corporate bonds compared to treasuries, widened slightly, limiting price returns and suggesting some normalization from historically low levels. High yield bonds, with their higher coupon rates and lower sensitivity to yield curve fluctuations, outperformed their higher-quality, investment-grade counterparts. The Bloomberg US Corporate Bond Index declined by 0.1%, while the Bloomberg High Yield Corporate Index increased by 1.6%.
Global Bonds
Fixed income markets outside the US faced significant challenges in the second quarter due to economic expectations and political uncertainty, leading to a broad sell-off. The ECB was the first major central bank to reduce its policy rate, while the Bank of England and the Bank of Japan maintained their policies. The Japanese bond market continued to underperform severely, primarily due to the ongoing decline of the Yen. Emerging market performance was mixed, with some regions doing well and others struggling, particularly in countries holding high-stakes elections. The Bloomberg Global Aggregate Ex-US fell by 2.1%.
Alternatives
Oil prices ended slightly higher as OPEC+ continued to make production cuts. In June, OPEC+ agreed to extend their cuts of 3.3 million barrels per day by a year to the end of 2025 while prolonging the 2.2 million barrels a day by 3 months until September 2024. The market dynamics reflected a 1.2% increase in WTI Crude prices. Precious metals like gold and silver had a positive quarter, with strong gains in the beginning before basing out. Base metals also had a strong quarter. In the digital asset space, Bitcoin (-12%) and Ethereum (-5.8%) pulled back after a strong first quarter rally. The first half of 2024 saw positive catalysts for the space such as the regulatory approval of spot crypto ETFs.
Q2 2024 Market Commentary
The economic momentum from the first quarter of 2024 continued into the second, resulting in another positive period for equity markets. Initial concerns over central bank rate cuts due to strong April data eased, reviving hopes for a soft landing. Inflation in the services sector remained a concern, reducing expected rate cuts by Western central banks. U.S. equities performed well, with the S&P 500 up over 15% YTD, led by larger companies, while small caps and REITs lagged. Fixed income investors faced negative returns, with global investment grade bonds down 1.1%. AI-related stocks and U.S. tech companies drove global growth stocks’ 6.4% quarterly return. European markets saw modest gains, with UK equities up 3.7%, and Japanese equities led non-U.S. stocks. Despite softening U.S. economic data, the Fed maintained a hawkish stance, and Treasury yields rose slightly. High-yield sectors, supported by resilient corporate earnings, outperformed other fixed income segments. Overall, risk assets delivered positive returns amid economic resilience, with a promising medium-term outlook for fixed income as central banks are expected to ease policies.
Domestic Equities
During the second quarter of 2024, the major U.S. stock indices exhibited varied performance. The S&P 500 rose by 3.5%, the Nasdaq Composite surged by 9.1%, and the Dow Jones Industrial Average posted a modest gain of 0.5%. This period saw significant contributions from large-cap technology stocks, particularly those involved in artificial intelligence (AI), which propelled the Nasdaq to its strong quarterly performance.
Market sentiment during the second quarter was influenced by mixed economic data and the Federal Reserve’s policy stance. Inflation data showed the core PCE price index rising by 0.1% in May, aligning with expectations and leading to speculation about future Federal Reserve actions, with a greater than 60% chance of a rate cut in September. The U.S. equity market’s positive performance was also driven by resilient corporate earnings, particularly in the technology sector. However, the broader market gains were concentrated in larger companies, while small-cap stocks and REITs underperformed due to the higher-for-longer interest rate environment.
Despite the significant shift in the trajectory of interest rates leading to higher market rates and exerting some downward pressure, domestic equities posted substantial gains during the first quarter. This broad advance was underpinned by corporate earnings figures that appeased investors and alleviated concerns of an impending earnings recession, coupled with consistently positive economic data that buoyed sentiment. Virtually every sector of the S&P 500 participated in the rally, except for the interest rate-sensitive Real Estate sector, as expectations of higher rates gained traction. Technology and Communications, perennial leaders, performed strongly once again, buoyed by a handful of their largest constituents. They were joined by Financials and Energy, which staged an impressive rebound from the previous quarter, fueled by higher global energy prices. The S&P 500 surged by 10.5%, the Nasdaq gained 9.3%, and the Dow Jones Industrial Average added 6.1% during the quarter.
Notably, economic data played a significant role in driving much of the performance seen in the quarter. Retail sales surged in March, exceeding expectations, and ending the quarter on a very high note. The manufacturing sector also exhibited signs of recovery, with the ISM Manufacturing PMI entering expansionary territory for the first time in nearly a year and a half. Despite a marginal uptick, the unemployment rate remained at a resilient 3.8%, underscoring the strength of the US labor market. Inflation displayed stickiness during the first quarter with the substantial progress made so far stagnating. Headline CPI inched up from 3.4% to 3.5%, while core CPI, excluding volatile energy and food prices, saw a slight decline to 3.8%. The PCE index, the Federal Reserve’s preferred inflation measure, displayed more progress, with the core rate easing to 2.8%.
Foreign Equities
The MSCI ACWI ex-USA index gained 2.8% for the second quarter of 2024.
Eurozone
In Q2 2024, the MSCI Europe ex-UK index posted a modest gain of 0.6%. European markets benefited from improving economic conditions and easing cost-of-living pressures. However, political uncertainties, particularly surrounding the French parliamentary elections, introduced some volatility. Despite these challenges, the economic momentum remained positive, with sectors like technology and industrials showing strong performance.
UK
The UK market (FTSE All-Share) delivered a solid return of 3.7% in Q2 2024. This performance was driven by an improving economic outlook and robust corporate earnings. Significant contributions came from the financial and consumer sectors, reflecting the resilience of the UK economy despite global economic uncertainties.
Japan
The Japanese equity market (TOPIX) saw modest gains of 1.7% in Q2 2024. This performance was supported by favorable corporate earnings and stable economic indicators. Strong performances in the technology and industrial sectors further bolstered the Japanese market, highlighting the country’s economic stability and growth prospects.
Emerging Markets
Asian equities excluding Japan (MSCI Asia ex-Japan) performed strongly in Q2 2024, achieving a 7.3% return. This was led by government support measures in China, particularly for the real estate sector, and robust performance in the Taiwanese stock market due to its exposure to the booming AI sector. The MSCI Emerging Markets index outperformed developed markets with a 5.1% return, driven by strong performances in Asian markets and favorable economic conditions in several large Latin American economies.
Fixed Income
In the second quarter of 2024, fixed income markets experienced moderate declines, turning in a dismal performance for the first half of the year. Initial optimism about a significant global rate-cutting cycle diminished as central bankers hesitated due to economic data, although the European Central Bank did implement its first rate cut in June. This general reduction in dovishness caused rates to edge higher, adversely affecting bond performance. Additionally, election cycles worldwide put pressure on bonds due to uncertainty and volatility surrounding political outcomes. As a result, the Bloomberg Global Aggregate fell by 1.1%
US Treasuries
Despite significant volatility in treasury yields throughout the quarter, with the 10-year yield fluctuating between 4.2% and 4.7%, the benchmark rate ended close to its April 1st starting point. However, there was a steepening of the yield curve at the longer end, suggesting economic and political uncertainty. With no major surprises in economic activity or inflation during the quarter, the Federal Reserve reduced their rate cut expectations at their June meeting, lowering the forecast from three cuts to just one. The “higher for longer” narrative appears to prevail, indicating a cautious approach to policy easing by the Fed. The Bloomberg Intermediate Treasury Index rose by 0.6%.
Corporate Credit
Credit investors were not immune to the fixed income market volatility experienced by treasuries resulting in a mixed performance for the second quarter. Credit spreads, which measure the additional risk of corporate bonds compared to treasuries, widened slightly, limiting price returns and suggesting some normalization from historically low levels. High yield bonds, with their higher coupon rates and lower sensitivity to yield curve fluctuations, outperformed their higher-quality, investment-grade counterparts. The Bloomberg US Corporate Bond Index declined by 0.1%, while the Bloomberg High Yield Corporate Index increased by 1.6%.
Global Bonds
Fixed income markets outside the US faced significant challenges in the second quarter due to economic expectations and political uncertainty, leading to a broad sell-off. The ECB was the first major central bank to reduce its policy rate, while the Bank of England and the Bank of Japan maintained their policies. The Japanese bond market continued to underperform severely, primarily due to the ongoing decline of the Yen. Emerging market performance was mixed, with some regions doing well and others struggling, particularly in countries holding high-stakes elections. The Bloomberg Global Aggregate Ex-US fell by 2.1%.
Alternatives
Oil prices ended slightly higher as OPEC+ continued to make production cuts. In June, OPEC+ agreed to extend their cuts of 3.3 million barrels per day by a year to the end of 2025 while prolonging the 2.2 million barrels a day by 3 months until September 2024. The market dynamics reflected a 1.2% increase in WTI Crude prices. Precious metals like gold and silver had a positive quarter, with strong gains in the beginning before basing out. Base metals also had a strong quarter. In the digital asset space, Bitcoin (-12%) and Ethereum (-5.8%) pulled back after a strong first quarter rally. The first half of 2024 saw positive catalysts for the space such as the regulatory approval of spot crypto ETFs.