Q3 2024 Market Commentary

24/10/2024

Global Markets

Note: All quoted equity performance figures are in GBP terms.

It was a volatile quarter for global equity markets during Q3. The MSCI ACWI Index finished the quarter up 0.5%, with Emerging Markets (+2.5%) outperforming Developed Markets (+0.2%).

The S&P 500 declined slightly over Q3, finishing down 0.2%, as central bank policy rates were the main focus for investors. Weak economic data and uncertainty over the path of monetary policy resulted in heightened volatility and lower equity values in July and August, but resilient corporate earnings and a 50 bps rate cut in September led to the S&P 500 recovering almost all of its earlier losses by the end of the quarter.

UK equities performed positively, with the FTSE 100 Index up 1.8%. The quarter started with a landslide general election win for the Labour Party, which fueled optimism about the prospects for the domestic economy. This was coupled with the first interest rate cut in four years by the Bank of England (BoE) in August, providing a further boost for investors. However, new Prime Minister Keir Starmer warned of a ‘painful’ Autumn budget to come.

Japanese equities experienced a turbulent quarter. After reaching highs in July, August brought a sharp selloff in markets following weak US economic data and the Bank of Japan raising interest rates. Market volatility spilled over into international markets, but currency effects meant that UK investors were shielded meaningfully from the full effects of the drawdown, with the index recovering to finish the quarter broadly flat (-0.4%).

Emerging Markets performed strongly, up 2.5%. A late rally in China meant the MSCI China All Shares Index finished up 22.3%, having been down for the quarter until late September. The rally was sparked by a raft of stimulus measures announced by Beijing to reverse an economic slowdown, which included rate cuts and a variety of fiscal support.

Equity Styles

Global Quality (+3.6%) was the strongest performing equity style over the quarter and the only style to outperform broader markets. Value delivered negative returns, finishing the quarter down 1.4%, while Momentum was the lowest returning style, delivering returns of -3%. Many of the larger technology-related names that make up a considerable portion of the Momentum index struggled over the quarter.

Inflation

Q3 saw interest rate cuts dominate the headlines, with several major central banks reducing rates over the quarter. The biggest news came from the US, where the Federal Reserve cut rates for the first time in more than four years, lowering rates by 50bps. Inflation has been cooling in the US and came in at 2.5% in August, down from 2.9% in July.

After reaching the Bank of England’s 2% target in May and June, inflation picked up in the UK over the quarter, with annual price increases coming in at 2.2% for both July and August. Q3 saw the first interest rate cut by the BoE since 2020, with the benchmark rate being lowered by 25bps to 5.0% in August.

Eurozone inflation continues to fall faster than other markets, dropping from 2.6% in July to 1.8% in September, below the official 2% target. The European Central Bank (ECB) cut rates by 25bps to 3.5% in September, the second time this year that the bank has cut its main benchmark rate.

Fixed Income

Note: All quoted fixed income performance figures are in GBP-hedged terms.

It was a positive quarter for fixed income assets, as falling inflation data meant many economies began their rate cutting cycle. The lowering of interest rates squeezed yields and pushed asset values higher across the board. Government bonds rallied, with yields on US and UK 10-year government bonds both falling below 4% during the quarter. Corporate bonds outperformed government bonds over the quarter, with both Investment Grade and High Yield indices returning 4.8%. From a regional perspective, US bonds outperformed European bonds in both Investment Grade and High Yield.