June 2024 Commentary

After a challenging April which saw investor resolve tested amidst sticky inflation, markets managed to regain some of their footing in May, helped by dovish central bank rhetoric and softer economic data. Fed Chair Powell set the tone for the month by pushing back on the potential for rate hikes and announcing a slowing of the pace of quantitative tightening. Not long after, the US jobs report pointed to slower job growth, which helped to appease those concerned the economy was overheating and kept the door open for rate cuts this year. Inflation data also helped support momentum with most readings in line with expectations, providing much needed respite after a number of hotter-than-expected prints; a trend also supported by falling oil prices as geopolitical tensions eased relative to April. That being said, May was not a month absent of pull back as improved growth momentum and accelerating wage data in Europe led some to question whether the ECB will proceed with a rate cut in June; the rate cut seen as a certainty little over a month ago. In addition, minutes from the latest Fed meeting also pointed to a willingness of some members to support rate hikes should risks to inflation materialise. While a number of speakers also sounded more hawkish as the month wore on, with Waller uncomfortable supporting easing until we see several more months of good inflation data and Barr emphasising the need to hold rates steady for longer than previously thought.

In terms of market returns, global equities (+3.7%) were positive in May overall, however there was a degree of variation across regions. US (+4.7%) and Europe ex UK (+3.0%) were the strongest areas, with both the S&P 500 and Euro Stoxx 600 reaching all-time highs intra month. On the other hand, emerging markets (+0.5%) and Japan (+1.2%) lagged after a period of outperformance. In terms of equity styles, growth stocks (+5.1%%) outperformed value (+3.0%), and small-cap stocks (+4.0%) surpassed large caps (+3.7%), given relative sensitivity to interest rates. This was also reflected in sector performance, with IT (+8.1%) the top performing sector, whilst Energy (+0.3%) and Consumer Discretionary (+0.5%) lagged significantly.

Fixed income markets were positive over the month, with higher-quality (more interest rate sensitive) government bonds underperforming on a relative basis. Data consistent with a “Soft Landing” scenario brought forward market expectations for rate cuts and pushed bond yields lower, meaning that the Global Aggregate bond index rose +0.9% over the month. Such data also helped support credit spreads, with both global investment grade (+1.4%) and high yield (+1.1%) gaining over the month.

In the real assets space, both global real estate (+3.3%) and global infrastructure (+6.3%) were well bought, with the infrastructure segment faring relatively better given the longer duration nature of the underlying assets. Commodities were also positive in May, with a large degree of variation within the index. Gold (+1.4%) continued its strong run, supported by demand from central banks whilst Oil (-4.8%) fell back as geopolitical tensions eased.