Market Update – October 2024
Market Update
Investment markets have been experiencing a solid upswing in recent weeks. The S&P/ASX 200 closed September at 8,269.83, marking a 2.20% increase. However, sector performance was notably uneven: Materials and Information Technology sectors led the gains, Energy made a recovery from earlier lows, whilst Banks and Healthcare saw sell-offs. Similarly, the S&P 500 in the U.S. had a similarly strong September, finishing at 5,762.48, up 2.02% in USD terms. The positive momentum was largely driven by a broader risk-on sentiment, fuelled by falling interest rates, which continued to support equity markets.
In Australia, macroeconomic data continues to indicate that inflation remains persistently high. The labour market remains tight, with the unemployment rate remaining steady at 4.2% and the participation rate at a record high of 67.1%. Furthermore, GDP growth for Q2 was 0.2% QoQ, up from 0.1% in Q1. As a result, the Reserve Bank of Australia (RBA) held the cash rate at 4.35% during its September meeting, emphasizing that inflation is unlikely to return sustainably to the 2-3% target range until 2026. The RBA acknowledged that while headline inflation may temporarily decline due to federal and state cost-of-living relief measures, they would not factor these into their long-term outlook. Additionally, they highlighted that labour productivity has stagnated, remaining at 2016 levels, which could contribute to the ongoing inflationary pressures. The RBA decision was widely anticipated by the market, with the Bloomberg AusBond Composite 0+ Year Index posting a marginal decline of -0.06% for the month.
In international markets, China saw a significant rally, with the CSI 300 Index surging 21.0% for the month—its largest increase since December 2014. This sharp rise was fuelled by a major shift in sentiment following Beijing’s efforts to reverse the economic slowdown and revive long-term interest in the stock market. Chinese authorities committed to meeting the 5% growth target, pledging to deploy ‘necessary fiscal spending’. Key measures included easing home-buying restrictions, cutting bank lending rates, and providing brokers with cheap funding to purchase stocks, all of which boosted investor confidence.
In the U.S., a weakening labour market, with unemployment rising to 4.3%, combined with easing inflationary pressures, down to 3.2% year-over-year, and solid real GDP growth of 3.0% year-over-year in Q2 2024, prompted the Federal Reserve to lower its target range for the Federal Funds Rate by 0.5% to 4.75%–5.00%. This marks the first rate cut since early 2020 and signals the start of what is expected to be a rapid easing cycle. Notably, one board member dissented, favouring a smaller 0.25% cut. Market reaction was subdued, with the US yield curves steepening slightly as long-term interest rate projections remained higher than anticipated. The performance from global bonds was similarly muted with the Bloomberg Global Aggregate Index down slightly -0.37% for the month.
The challenging and ever shifting macro environment requires nimble and active portfolio management and a strong focus on risk.
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