September 2024 Market Summary

Market Update

The Portfolio’s delivered robust performance this month, driven by strong gains in both the Australian and International Equities subsectors.

Over the past few months, inflationary pressures in the US cooled somewhat, and the market has begun to focus on the impact of high interest rates on employment. Unemployment rates globally have begun to tick up, with the US unemployment rate reaching 4.3%, 0.5% above its low post pandemic. US history suggests that once it rises 0.5% above the low from the previous 12 months, the economy is already in the early stages of a recession (this is the basis for the Sahm rule) – though interestingly this is not a pattern repeated in other regions, including Australia.

In Australia, employment markets are much tighter. With the unemployment rate at a near all-time low of 4.2% and a participation rate that has continued to climb since the pandemic. Wage growth also remains at historically high levels of over 4%, maintaining inflation above the RBA’s target band.

Globally, yield curves have been falling as market participants have begun to price in interest rate cuts that would only be necessary if a recession were to occur. We view the current quantity and timing of projected rate cuts as an overreaction to a labour market that is normalising rather than collapsing post pandemic. We continue to see strong GDP growth data in the US, with no consistent sign of weakness.

We see selective pockets of value in places such as Emerging Markets. The global economy is projected to grow at 3.2% in 2024 and 2025, matching 2023’s growth rate, with global inflation expected to decline as major central banks, including the Fed, loosen monetary policy. This trend is likely to reaccelerate global economic growth and support equity returns in Emerging Markets which are trading on much cheaper relative valuations vs developed market equities.

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