Your quarterly market commentary

Overview:
 

• The second quarter of 2024 was excellent for global markets, delivering exceptional returns for our AMP-branded funds. Corporate earnings and easing inflation drove equity markets to new highs. 
• Conflict in the Middle East and sticky inflation accounted for periods of investor uncertainty during the quarter. However, strong corporate earnings data provided investors with the confidence to support valuation levels. Adding to investor confidence are the first signs that growth is moving beyond the large-cap technology stocks and is broadening out.
• The UK equity market followed global markets and the benchmark FTSE 100 index reached a new high. UK economic growth data and easing inflation is responsible for the market anticipating interest rate cuts.
• Asian markets also performed well, and the Chinese market rallied after new measures were announced to revive the struggling property market.

Growing technology advancements driving strong returns 

Investors’ enthusiasm for AI and a general preference for high-quality companies has driven technology returns up 30% this year, nearly four times higher than the rest of the S&P 500.

The technology sector has risen 100% since January 2023, while the rest of the S&P 500 saw only a 24% rise during the same period. At this point in time, the full potential of artificial intelligence is not yet realised or imagined and its impact on productivity will only be evident over the long term.

Inflation continues to put pressure on interest rates

Some central banks started to cut interest rates in Q2, led by the Swiss Central Bank, Sweden, Canada and the European Central Bank (ECB). In contrast, the Bank of England left rates unchanged at a 16-year high of 5.25%, and the Federal Reserve has kept rates unchanged in the 5.25% to 5.5% range. Persistent supply constraints are creating ongoing inflation pressure, keeping policy rates above pre-pandemic levels and growth below.

In New Zealand, the RBNZ is holding the official cash rate steady with no sign as to when interest rates will drop. Inflation is proving to be more persistent than what markets would like and until such time that there are clear indicators that inflation is easing, the RBNZ is expected to hold its monetary policy setting.
 

Fixed income

Today is a different world for fixed income investing compared to pre-pandemic times. After historic central bank rate increases, almost 86% of global fixed income assets now offer a return of 4% or more. This is significant growth when compared to the less than 20% in the decade leading up to the pandemic. Higher yields mean bonds provide more income cushion for investors. However, due to macro volatility and geopolitical tensions, quality assets are preferred and developed markets have experienced investor inflows. 
 

Outlook

Lack of a clear direction on inflationary pressures and economic growth, uncertainty around  global election outcomes, U.S. domestic policy, geopolitical conflict, and global inflation is expected to continue to affect investor behaviour over the short term.  In addition, the low levels of growth in Europe, the UK and French elections could drive uncertainty that could impact markets in the short-term.

Thank you for continuing to read our market commentaries. We look forward to bringing these to you quarterly, and as always, if you need a little help with your savings goals or have any questions, please contact your adviser or AMP for a little help.