Q2 2024 Global Markets Recap
Highlights
- U.S. equities in the first-half are soaring like fireworks
- Nvidia the new king of the mountain
- Crypto missing a spark
US Markets
As we close another quarter, the S&P 500's first-half performance has been outstanding at 14.79%, well above the historical average of 4.72%. The U.S. IPO market has experienced a resurgence, raising $17.8 billion in the first half of this year—a 75% increase from the same period in 2023. This growth is attributed to rising investor confidence, improved IPO valuations, and record-high equity prices, according to EY. Globally, the IPO market mirrors the broader economic landscape, striving to find stability amid geopolitical and election complexities. While opportunities are increasing in developed western economies, the Asia-Pacific region faces significant challenges that test its resilience.
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At the end of Q2, all members of the "Magnificent 7" concluded the quarter in positive territory. Nvidia's performance was particularly remarkable, with its stock rising as much as 50.04% during the quarter before a slight pullback. Notably, on June 18th, Nvidia briefly became the largest company in the world in terms of market capitalization, surpassing both Apple and Microsoft.
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In Q2 2024, technology and communications stocks remained the market leaders. Tech sector surged by 8.52%, while the communication sector increased by 4.37%. Defensive sectors also performed well with utilities gaining 5.26%. However, cyclical stocks experienced declines, particularly in basic materials. Energy and industrial stocks, which had strong double-digit gains in the first quarter, saw significant drops. Real estate stocks continued to struggle due to persistently high interest rates.
In Q2, factor performance showed limited change. Momentum, Quality, and Growth factors maintained their outperformance, consistent with trends observed year-to-date (YTD). Conversely, Low Volatility, Value, and Dividend Aristocrats underperformed in Q2, yet all remain positive YTD.
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US Economy
In Q2 2024, the unemployment rate in the United States rose to 4%, marking its highest level since January 2022, up from 3.9% in the previous month. This increase surpassed market expectations, which had anticipated the rate to remain unchanged. The number of unemployed individuals grew by 157,000 to reach 6.649 million, while employment levels declined by 408,000 to 161.083 million. Concurrently, the labor force participation rate fell to 62.5% from 62.7%, and the employment-population ratio decreased slightly to 60.1% from 60.2%. Headline personal consumption expenditure (PCE) had no change from May, and core PCE increased 0.1%.
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Global Markets
As of the end of Q2, global market performance was varied, with Taiwan and India continuing to lead in year-to-date returns. Q2 saw the European Central Bank reduce its key interest rate by 25 basis points to 3.75%, marking its first cut in almost five years. Similarly, the Bank of Canada lowered its rate from 5% to 4.75%, its first reduction in four years. Futures markets are pricing in one further rate cut for the ECB this year. As of May data, emerging markets continued to drive global export growth, albeit at a slightly reduced pace compared to recent months. Despite easing to a three-month low, the expansion in emerging market exports remained robust, supported by increased orders in manufacturing and services.
In contrast, trade conditions in developed markets showed signs of stabilization in May. The decline in export orders was marginal, marking the slowest rate of decrease in the past two years.
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Fixed Income Markets
At the start of the year, investors were anticipating six rate cuts, but they now largely expect the central bank to maintain its current stance as long as necessary. Despite this, traders are still forecasting at least one quarter-point reduction by the end of the year, with a strong possibility of two cuts. Bond markets experienced a recovery in the second quarter, supported by improving inflation metrics. The yields on the 10-year Treasury note decreased by over 0.30 percentage points from their peak in April, finishing the quarter at 4.36%. This decline in yields has resulted in some price appreciation for bond holdings although longer duration bonds did lag for the quarter. In the second quarter of 2024, the catastrophe bond and insurance-linked securities (ILS) market saw heightened activity, issuing a record $8.4 billion in new risk capital. This influx has expanded the market to an unprecedented size of $48 billion.
Alternative Assets
Cryptocurrencies experienced a notable decline following robust gains in Q1, fueled by the approval of the inaugural spot Bitcoin exchange-traded funds (ETFs). Bitcoin concluded Q2 at approximately $60,000 per coin, reflecting a 14.57% decrease from its all-time high exceeding $73,000 per coin in March. Similarly, Ethereum, the second-largest cryptocurrency by market capitalization, closed the quarter with a 5.57% decline. Private equity distributions in Q1 2024 were just 8.7% of valuation, significantly below the 2015-2019 average rate of 23.5%, and a decline from the 11.6% seen in Q4 of 2023. The liquidity challenges within the private equity sector are likely to persist, as MSCI's early indications suggest further decreases in distributions for the second quarter.
Q2 2024 Global Markets Recap
Highlights
- U.S. equities in the first-half are soaring like fireworks
- Nvidia the new king of the mountain
- Crypto missing a spark
US Markets
As we close another quarter, the S&P 500's first-half performance has been outstanding at 14.79%, well above the historical average of 4.72%. The U.S. IPO market has experienced a resurgence, raising $17.8 billion in the first half of this year—a 75% increase from the same period in 2023. This growth is attributed to rising investor confidence, improved IPO valuations, and record-high equity prices, according to EY. Globally, the IPO market mirrors the broader economic landscape, striving to find stability amid geopolitical and election complexities. While opportunities are increasing in developed western economies, the Asia-Pacific region faces significant challenges that test its resilience.
‍
At the end of Q2, all members of the "Magnificent 7" concluded the quarter in positive territory. Nvidia's performance was particularly remarkable, with its stock rising as much as 50.04% during the quarter before a slight pullback. Notably, on June 18th, Nvidia briefly became the largest company in the world in terms of market capitalization, surpassing both Apple and Microsoft.
‍
In Q2 2024, technology and communications stocks remained the market leaders. Tech sector surged by 8.52%, while the communication sector increased by 4.37%. Defensive sectors also performed well with utilities gaining 5.26%. However, cyclical stocks experienced declines, particularly in basic materials. Energy and industrial stocks, which had strong double-digit gains in the first quarter, saw significant drops. Real estate stocks continued to struggle due to persistently high interest rates.
In Q2, factor performance showed limited change. Momentum, Quality, and Growth factors maintained their outperformance, consistent with trends observed year-to-date (YTD). Conversely, Low Volatility, Value, and Dividend Aristocrats underperformed in Q2, yet all remain positive YTD.
‍
US Economy
In Q2 2024, the unemployment rate in the United States rose to 4%, marking its highest level since January 2022, up from 3.9% in the previous month. This increase surpassed market expectations, which had anticipated the rate to remain unchanged. The number of unemployed individuals grew by 157,000 to reach 6.649 million, while employment levels declined by 408,000 to 161.083 million. Concurrently, the labor force participation rate fell to 62.5% from 62.7%, and the employment-population ratio decreased slightly to 60.1% from 60.2%. Headline personal consumption expenditure (PCE) had no change from May, and core PCE increased 0.1%.
‍
‍
Global Markets
As of the end of Q2, global market performance was varied, with Taiwan and India continuing to lead in year-to-date returns. Q2 saw the European Central Bank reduce its key interest rate by 25 basis points to 3.75%, marking its first cut in almost five years. Similarly, the Bank of Canada lowered its rate from 5% to 4.75%, its first reduction in four years. Futures markets are pricing in one further rate cut for the ECB this year. As of May data, emerging markets continued to drive global export growth, albeit at a slightly reduced pace compared to recent months. Despite easing to a three-month low, the expansion in emerging market exports remained robust, supported by increased orders in manufacturing and services.
In contrast, trade conditions in developed markets showed signs of stabilization in May. The decline in export orders was marginal, marking the slowest rate of decrease in the past two years.
‍
‍
Fixed Income Markets
At the start of the year, investors were anticipating six rate cuts, but they now largely expect the central bank to maintain its current stance as long as necessary. Despite this, traders are still forecasting at least one quarter-point reduction by the end of the year, with a strong possibility of two cuts. Bond markets experienced a recovery in the second quarter, supported by improving inflation metrics. The yields on the 10-year Treasury note decreased by over 0.30 percentage points from their peak in April, finishing the quarter at 4.36%. This decline in yields has resulted in some price appreciation for bond holdings although longer duration bonds did lag for the quarter. In the second quarter of 2024, the catastrophe bond and insurance-linked securities (ILS) market saw heightened activity, issuing a record $8.4 billion in new risk capital. This influx has expanded the market to an unprecedented size of $48 billion.
Alternative Assets
Cryptocurrencies experienced a notable decline following robust gains in Q1, fueled by the approval of the inaugural spot Bitcoin exchange-traded funds (ETFs). Bitcoin concluded Q2 at approximately $60,000 per coin, reflecting a 14.57% decrease from its all-time high exceeding $73,000 per coin in March. Similarly, Ethereum, the second-largest cryptocurrency by market capitalization, closed the quarter with a 5.57% decline. Private equity distributions in Q1 2024 were just 8.7% of valuation, significantly below the 2015-2019 average rate of 23.5%, and a decline from the 11.6% seen in Q4 of 2023. The liquidity challenges within the private equity sector are likely to persist, as MSCI's early indications suggest further decreases in distributions for the second quarter.
