Q3 Market Performance: Strong Gains in Equities and Fixed Income

Senior Investment Specialist, Rebecca Cretney shares highlights of the market performance for Q3 2024 and future investment opportunities, in her short video below.

Q3 Market Commentary: a comprehensive breakdown of Q3 investment markets from our colleagues at Nedgroup Investments.

Q3 began with optimism, as a cross-asset rally in early July pushed the S&P 500 to an all-time high. This was short-lived, as earnings reports from key technology firms failed to meet high expectations, dragging the Magnificent 7 into correction territory. By mid-July, concerns over the US economy grew as data pointed to a slowdown, with unemployment rising to 4.1% by the end of June. The Bank of Japan further added to the uncertainty by unexpectedly hiking its policy rate to 0.25%, and signalling more tightening ahead.

The US jobs report for July revealed softer-than-expected payroll growth (+114k) and a higher unemployment rate of 4.3%. Markets reacted swiftly, as fears of an economic downturn mounted and interest rate differentials between the US and Japan caused significant dislocations in the yen carry trade. Japan’s TOPIX index dropped by 12.2% in a single day on August 5, the largest decline since March 2020, while the VIX index spiked aggressively, signalling the highest volatility levels since the onset of the pandemic.

Despite this, markets found a floor in early September. Central banks pivoted to a more dovish stance, with the Federal Reserve delivering a 50bps rate cut, marking its first reduction since March 2020. Fed Chair Powell’s comments at Jackson Hole reassured investors that the Fed would act swiftly to counter economic weakness, sparking a sharp rebound in equities. Meanwhile, the Bank of Japan also sought to calm nerves, emphasising that they would not hike rates further in unstable market conditions.

Economic data also stabilised in September, helping to alleviate recession fears. US jobless claims fell, and nonfarm payrolls for August improved, with unemployment ticking slightly lower. These developments, along with signs of resilience in the US economy, contributed to a late-quarter recovery in risk sentiment.

Lastly, China’s significant stimulus measures at the end of September fuelled a rally in Chinese equities, with the CSI 300 surging over +27% in just two weeks, lifting global risk assets and further supporting the recovery.

Given this backdrop, equities were well supported, with the global index up by +4.9%, led by Emerging Markets (+6.6%) and Asia ex Japan (+8.0%). US (+5.8%) also performed well, while Japan (-6.0%) lagged, given the unwinding of the yen carry trade. In terms of equity styles, growth stocks (+4.1%) underperformed value (+9.6%), and small-cap stocks (+8.9%) outperformed large caps (+4.9%). There was a wide variation in sector performance, with Real Estate (+16.1%) and Utilities (+16.9%) being the strongest two sectors, while Energy (-2.0%) and Information Technology (+1.2%) lagged significantly.

Fixed income markets were also well supported with yields falling. Looking at the details, global government bonds (+3.8%) were up strongly, but lagged the riskier areas which benefitted from the yield pickup in what was a fairly benign default environment. This was seen in global emerging market debt (+6.1%), global investment-grade credit (+5.0%) and global high yield (+5.0%).

In the real assets space, global real estate (+16.3%) and global infrastructure (+13.4%) both significantly outperformed equities due to their sensitivity to falling interest rates. Commodities (+0.7%) on the other hand, were mixed with gold (+12.9%) continuing its strong run whereas oil (-11.8%) lagged behind.

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James Robertson, Head of Investment Proposition at Nedbank Private Wealth, also shares insight into our carefully constructed investment strategy that can give investors confidence in both calm and stormy investment environments.