July 2024 Market Summary

Markets endured a bumpy July, with the S&P/ASX 200 finishing the month at 8092 points, up 4.2%, driven by strong returns in the Financials sector. Commonwealth Bank (CBA) was a stand-out, up 7.9% for the month, and now comprising nearly 10% of the ASX 200 index by size. In the US, the S&P 500 closed at 5522 points, up 1.1%. The S&P 500 spent much of the month in negative territory before rallying into the end of the month, driven higher by dovish rhetoric from US Federal Reserve Chairman Jay Powell on the possibility of a September rate cut. Many of the more popular trades that have driven the market to record highs during 2024 (e.g. Semiconductors and the Yen carry trade) retreated marginally in the face of slightly worsening macroeconomic data.

In Australia, early-month economic releases highlighted the economy’s robustness, despite record high borrowing costs. May’s retail sales grew by 0.6% month-on-month, surpassing analyst estimates of 0.2%, while June’s employment data showed an additional 50,000 jobs, well above the forecast 20,000. In the Q2 2024 CPI data, released on July 31st, the RBA Trimmed Mean CPI rose by 0.8% for the quarter, which was 0.2% below analyst expectations.

In international markets, the Bank of Japan raised interest rates to 0.25%, the highest rate since the 2008 financial crisis. Off the back of these increased rates, a popular global trade called the carry trade, where investors borrow in low interest rate currencies, like the JPY, and invest in higher interest rate currencies, like the USD or AUD, began to unwind. This sent waves across global currency markets, causing many to fall against the Yen. It also saw a sharp sell-off in the Nikkei Index in early August. Fortunately, the equity volatility was short lived, as underlying growth remains strong.

In the US, June’s CPI and PCE data showed a continued easing in price growth, with the CPI print indicating that the US had unexpectedly fallen into deflation during June. This lower-than-expected CPI number ignited a rotation into small caps, with the Russell 2000 Index rallying 10% between the 10th and 16th of July.

While labour markets appear to have weakened slightly, the outlook for global growth remains relatively robust. In the US, Donald Trump appears to be tying or leading in all recent polls against Kamala Harris. Regardless of who wins office in November, we view the current spending and post-election policies proposed by both political candidates as supportive of asset prices in the short term.

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