Investment Markets In Review – Q3 2024
Pitcher Partners Investment Services (Melbourne) | The information in this article is current as at 14 October 2024
The September quarter began relatively quietly, before a strong pickup in activity and news flow towards the end of the period.
Probably the most significant event was the commencement of the easing cycle in US interest rates, with the US Federal Reserve lowering its benchmark rate by 50 basis points at the September meeting. The US Central Bank gained confidence that inflation is moving toward its target and is now placing greater focus on supporting the labour market, which has shown signs of weakening. At the time of writing, the market is pricing in ~7 further rate cuts over the next 12 months.
Australia’s inflation at 2.7% was similarly in line with expectations and continued its lower trend. Retail sales remained resilient, and several areas of the economy have shown far greater resilience than would have been expected. Due to the lagging inflation and areas of resilience in the economy, the RBA has to date held off in commencing its easing cycle, with expectations of easing beginning in early 2025.
In the bond markets, bond yields fell while credit spreads remained tight, contributing to a positive quarter for the fixed income benchmarks. Credit remained supported by ongoing demand from investors seeking yield, despite a record amount of issuances in the primary market, as corporates refinanced their upcoming maturities prior to the US elections. High yield credit spreads remained tight compared to historical levels, so we are cautious of this segment if default rates increase in the near term amid economic uncertainty.
The world’s stock markets experienced an easing of the AI-led frenzy of the preceding months, as the theme took a breather. This allowed other parts of the market to take some leadership and saw the equity market gains become broader for the quarter, a welcome move. Value was a significant factor in markets, outperforming growth, a reversal of recent trends. Interest rate-sensitive sectors generally performed strongly, as the US rate cutting began, with the expectation of further cuts to come.
The US market shrugged off the heightened tension of the looming presidential election, and instead was driven by the expectation of Fed easing, and a robust quarterly reporting period. The benchmark S&P500 returned 5.2% on the quarter.
The Australian market saw a healthy 6.7% return, driven in part by world markets, and has now delivered an annual return of 17.6%. A respectable earnings reporting season during the quarter, which saw an absence of major earnings disruptions, despite the clearly visible macro headwinds, was a major driver. Large capitalisation stocks on the whole performed well, and the market rewarded this with elevated valuations remaining in place. Dividends were the overriding surprise, with a large number of companies opting to pay out a healthy dividend.
The introduction of larger scale stimulus by the Chinese government towards the latter part of the quarter came as a surprise and led to a strong rally in the Chinese market. This market has largely been ignored by international investors over the last few years, due to concerns over the tepid growth outlook. While the stimulus measures lacked the ‘big bazooka’ that many had been hoping for, the market nevertheless took comfort in the magnitude and multiple measures of the stimulus, and the expectation of further measures to stimulate the stock market and the overall economy to come.
Both Australian and global property indices showed strength during the quarter, with the ASX200 Property index rising 13.5%, and global indices by a similar magnitude. The expectation that the current interest rate cycle having peaked, and lower rates being on the horizon, drove the gains.
Commodity prices experienced a breather, with our proxy index losing 2.3% over the quarter. Gold was the standout of the major commodities, rallying 13% on the expectation of the Fed beginning its rate cutting cycle. Oil prices, however, declined 18.2% on expectations of weaker demand as economic data remains softer. Iron ore saw a rally towards the end of the quarter on the back of the Chinese stimulus, marking hope of renewed demand from China, as the government aims to spur growth.
The Australian dollar strengthened against the US dollar over the quarter, closing 3.6% higher to $0.69.
| Financial Markets at 30 September 2024 | |||
| Indices | Current Level | 3 Months | 1 Year |
| ASX 200 | 8,269.8 | 6.7% | 17.6% |
| ASX 200 (Acc) | 107,579.0 | 8.0% | 22.0% |
| US S&P 500 | 5,762.5 | 5.2% | 34.4% |
| Japan Nikkei | 37,919.6 | -4.3% | 19.4% |
| UK FTSE 100 | 8,237.0 | 0.9% | 9.7% |
| MSCI World (AUD) | 18,968.0 | 1.7% | 22.2% |
| German Dax | 19,324.9 | 5.7% | 26.7% |
| French CAC | 7,635.8 | 1.0% | 8.0% |
| HK Hang Seng | 21,133.7 | 19.3% | 18.7% |
| Shanghai Comp | 3,336.5 | 11.4% | 7.3% |
| ASX 200 Prop (Acc) | 82,277.9 | 13.5% | 46.4% |
| Global Prop | 2,993.5 | 14.1% | 27.0% |
| Australia 2Y Bond Yield | 3.64 | -56 bp | -44 bp |
| Australia 10Y Bond Yield | 3.97 | -41 bp | -51 bp |
| US 2Y Bond Yield | 3.64 | -111 bp | -146 bp |
| US 10Y Bond Yield | 3.78 | -68 bp | -90 bp |
| Commodities | |||
| Gold (oz) | 2,634.6 | 13.0% | 44.1% |
| Oil (Barrel) | 68.2 | -18.2% | -23.2% |
| Iron Ore (Tonne) | 99.8 | -3.5% | -14.6% |
| Aluminium | 2,611.5 | 3.8% | 12.5% |
| Copper | 9,829.0 | 2.1% | 22.1% |
| Lead | 2,096.0 | -5.5% | -2.3% |
| CRB Index | 284.9 | -2.3% | 0.9% |
| Currencies | |||
| AUD/USD | 0.6913 | 3.8% | 8.6% |
| AUD/EUR | 0.6208 | 0.1% | 2.2% |
| AUD/GBP | 0.5169 | -1.8% | -1.8% |
| AUD/JPY | 99.30 | -7.7% | 4.1% |
| AUD/RMB | 4.856 | 0.5% | 4.5% |
