Global equities continued their march higher at the start of 2H24 (MSCI World Index +1.8% MoM). However, the main contributors to July’s returns differed significantly from the drivers of equity market returns in 1H24. The Magnificent 7 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) collectively returned 32% in 1H24 and were responsible for half of the MSCI World Index return in that period. That mega-cap tech cohort was collectively down 2% MoM in July, with the remaining 1,423 stocks in that index collectively up 3% MoM. Small-cap stocks, a big laggard in 1H24 (Russell 2000 Index +2% in 1H24) relative to large-cap tech (Nasdaq +17% in 1H24), were a key beneficiary of the lead changing hands in July (Russell 2000 Index +10% MoM). This dispersion of stock returns in July was also a function of information investors gleaned from the 2Q24 earnings announcements, with c. 60% of S&P 500 companies reporting results during July. Those companies reported earnings that were up c. 9% YoY in aggregate, c. 4% ahead of expectations. Tesla, out of sync with its Magnificent 7 peers in 1H24 (falling by 20% in 1H24), bounced back strongly in July (+17% MoM) as its latest quarterly deliveries data was not as bad as the market had expected.
Emerging markets (EMs) eked out a small positive return for the month (MSCI EM +0.4%) with strong contributions from India and South Africa (Nifty 50 and FTSE/JSE Capped SWIX both +4% MoM), which was offset by another tough month for foreign-listed Chinese stocks (Hang Seng China Index and Nasdaq Golden Dragon China Index both -2% MoM). Recent Chinese economic data, including 2Q24 GDP and June retail sales, were worse than anticipated, with no signs of a recovery in Chinese consumer spending. The announcement in July that US President Joe Biden was dropping out of the presidential race against Republican candidate Donald Trump in the November US Presidential Elections also potentially increased the prospect of another bruising trade war between the US and China.
The most recent US inflation data showed prices cooling faster than anticipated for the second consecutive month, increasing investor optimism around the prospect of US interest rate cuts, with investors ending the month positioned for US Federal Reserve (Fed) rate cuts of 0.25% at each of the three remaining Fed meetings in 2024. Easing concerns about the prospect of a higher-for-longer rate environment helped push the US government’s 10-year borrowing rate 0.4% lower for the month, leaving the 10-year borrowing rate for the government marginally above 4% p.a. at the end of July.
Falling global rates helped the Bloomberg Global Bond Index to a 2.8% MoM return in July, reversing most of its YTD losses. Lower rates acted as a headwind for the US currency, which was weaker against most of the major developed market (DM) currencies and around half of EM currencies.
