2024 has so far delivered a positive trajectory for equities and other risk assets, with the majority of funds recording gains.

The financial landscape, marked by steady short-term US interest rates, remains dynamic as market participants navigate various economic and political developments.

Market Performance in 2024

Equity Markets: The rally that began in the fourth quarter of 2023 has persisted into 2024, propelled by mega-cap stocks riding the wave of the Artificial Intelligence (AI) narrative. These stocks have underpinned market gains, even as sticky inflation and a robust US labour market tempered earlier expectations of significant rate cuts. Consequently, the market has now priced in only one US interest rate cut for the year, a stark reduction from the six to seven cuts anticipated at the end of 2023. Despite this, world equities have achieved a 15.2% return in euro terms for the first half of 2024.

Recent market performance has been more volatile. Early August was marked by unpredictable market movements. An unexpected surge in U.S. unemployment to a nearly three-year high triggered recession fears. The Bank of Japan’s decision to hike interest rates for just the second time in 17 years, resulting in a significant strengthening of the yen against the dollar, further unsettled the markets. Tokyo’s Topix fell by 12.2%, its sharpest decline since “Black Monday” in 1987. Adding to the volatility, Warren Buffett’s decision to sell over half of his stake in Apple, combined with a record cash pile disclosure by Berkshire Hathaway, spurred negative market sentiment.

Interest Rates: US short-term interest rates have remained between 5.25% and 5.5%, the highest since 2001. While the Federal Reserve has not met the aggressive rate cut expectations from the start of the year, some central banks, such as the Swiss National Bank and the European Central Bank, have reduced short-term rates for various reasons.

Political Landscape: The first half of the year has been marked by significant political events. Donald Trump has emerged as the leading candidate for the Republican party in the upcoming US Presidential Election, while US President Joe Biden ended his re-election campaign. In the UK, Prime Minister Rishi Sunak’s snap election announcement surprised many, while the European Parliament Elections led to substantial shifts away from incumbent parties, prompting a parliamentary election in France. These political developments are poised to influence market sentiment and policy directions for the remainder of the year.

China: China has struggled to meet growth targets, with ongoing issues in the real estate sector and deflationary pressures dampening performance. However, there are emerging signs of improvement as policymakers focus on stimulating growth.

Commodities: Geopolitical tensions, particularly in the Middle East and Ukraine, have driven volatility in energy and oil markets. WTI crude oil prices have risen by 17.3% in euro terms year-to-date, while gold has rallied, bolstered by its safe haven appeal and continued central bank purchases.

Outlook for the Remainder of 2024

  We expect the coming weeks to be volatile as the market seeks a new equilibrium. During this period, it is essential to remain calm and avoid reacting impulsively to daily market movements. Investors should remain vigilant and prepared to adapt to evolving conditions, leveraging a balanced and flexible investment strategy to navigate the complexities of the market.

Several risks persist, including the state of global commercial real estate, which suffers from high vacancy rates in urban centres, compounded by the effects of remote work and higher refinancing rates. China’s growth remains under scrutiny. Additionally, the results of the key election in the US will be closely watched for its economic implications.

Investment managers have shifted towards a more balanced asset allocation after years of high equity exposures. They maintain a flexible outlook, prepared to capitalise on opportunities in both equities and fixed income as they arise.

Conclusion

The interplay of political developments, central bank policies, and economic indicators will continue to shape the investment landscape. Investors should remain vigilant and prepared to adapt to evolving conditions, leveraging a balanced and flexible investment strategy to navigate the complexities of the market.

Taking time to review and refine your investment strategy with a financial broker is a wiser choice. By following fundamental investment principles, investors can improve their chances of achieving a positive outcome. Remember, the market will experience highs and lows in response to social, political, and economic events, but staying the course is crucial for long-term investment success.

Here to help you navigate your way to financial security. The Milestone Advisory team are qualified financial services consultants. We specialise in helping professionals in the construction sector and related industries.

Our team will work with you to review your finances, explaining your options in clear English. No jargon – just the facts. For more information, contact Darragh Hogan.

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