The third quarter of 2024 wrapped up on a positive note for most major asset classes, despite some market volatility. Early August saw markets shaken by weaker U.S. economic data, an interest rate hike by the Bank of Japan, and low liquidity during the summer. However, things turned around in September when the U.S. Federal Reserve (Fed) began its expected rate cuts. A more moderate tone from Japanese policymakers and fresh stimulus from China further eased investor concerns, sparking a strong stock market rally towards the end of the quarter.
Developed market equities maintained their momentum, with the MSCI World Index gaining 1.9% (USD) month-on-month, leaving the global equity benchmark up 17.48% year to date. The Fed was instrumental in boosting investor sentiment, cutting interest rates by 0.5% at their September meeting—larger than anticipated—marking their first cut since early in the COVID-19 pandemic. This brought the Fed’s rate down to 5%, off the mid-2023 peak. Weakness in the U.S. labour market drove the decision, though the Fed remains confident in the country’s economic growth prospects.
The hardest-hit parts of the market due to high rates, such as small caps, performed well, with small caps up 9.5% (USD) and global REITs climbing 16.2% (USD). Growth stocks took a slight dip but remain up over 20% (USD) for the year. In fixed income, hopes for lower rates pushed the Barclays Global Aggregate index up 7.0% (USD) in the third quarter, with government bonds and credit both performing solidly. Emerging market debt saw a 6.1% (USD) rise, positioning it among the top performers in fixed income year-to-date.
Commodity performance was much more muted, returning just 0.7% over the quarter. Amid growing concerns around the health of the global economy, Brent Crude oil prices fell by 17%, although gold did rally to new all-time highs.
USA
September typically brings weaker equity performance, but not this year. U.S. markets broke tradition, with all three major indices reaching record highs. The Dow gained 1.8% (USD) month-on-month (+12.3% (YTD), the S&P 500 rose by 2% (USD) (+20.8% YTD), and the tech-heavy Nasdaq climbed 2.7% (USD) (+21.2% YTD).
The US Federal Reserve (Fed) was a key catalyst driving investor optimism in September. 14 months on from its last interest rate hike, the Federal Reserve (the Fed) kickstarted its cutting cycle with a 50-basis point (bp) move in September. With the unemployment rate having drifted up from a low of 3.4% in April 2023 to 4.2% today, Fed officials have now made it clear that they do not welcome any further weakening in the economy and are keen to quickly move interest rates back to less restrictive levels. Later in the month, the Fed’s more circumspect view on the economy was vindicated by the largest monthly decline in consumer confidence in over three years.
A comparison of market pricing for future interest rates at the start and end of the third quarter demonstrates how the rate outlook is perceived to have shifted. On 30 June, market pricing saw US interest rates reaching 4.4% by the middle of 2025. Now, investors believe that rates are more likely to hit 3.2% over the same period
The S&P 500 continued its long march higher, returning 5.9% over the quarter. Encouragingly for equity investors, there were signs of the long-anticipated “broadening out” of returns finally starting to play out. US value stocks outperformed their growthier counterparts by 7% points, while small cap stocks rallied in anticipation of lower interest rates ahead.
ASIA
Asia ex-Japan was the top-performing region, delivering a return of 10.6% for the quarter. After a quiet start, Asian stocks surged in late September following the announcement of new stimulus measures by Chinese policymakers.
In contrast, Japanese equities lagged, with the market falling 4.9% (YEN). The Bank of Japan’s July rate hike, combined with Governor Ueda’s guidance on potential future hikes, was followed by a weak US labour market report. As the interest rate gap between the US and Japan narrowed, the Japanese yen appreciated significantly, triggering an abrupt unwind of many “carry trades” that had benefited from low Japanese borrowing costs. Although more reassuring comments from BoJ officials helped Japanese stocks recover some losses, the market still ended the quarter in negative territory.
Japan’s benchmark Nikkei finished September down 1.9% (YEN), impacted by mixed economic data and concerns that incoming Prime Minister Shigeru Ishiba would pursue policies supporting a stronger yen, which could weigh on Japanese exporters. In economic data, August’s headline CPI hit 3.0% (a 10-month high) compared to 2.8% in July, driven by a rise in consumption linked to higher wages. Core-core inflation, excluding fresh food and energy prices, stood at 2.0% year-on-year, up from 1.9% in July. At its September meeting, the BoJ kept its benchmark interest rate steady at approximately 0.25%, the highest since 2008.
SOUTH AFRICA
In South Africa, the FTSE JSE All Share Index surpassed the 87,000-mark last month before retreating to close at 86,548 on 30 September, posting a monthly gain of 3.3% (ZAR). Key drivers behind the market’s performance included improved global investor sentiment following China’s stimulus announcements, easing monetary policies from both the US Federal Reserve and the South African Reserve Bank (SARB), optimism surrounding the Government of National Unity (GNU), and a six-month period without load-shedding. The Capped SWIX rose by 4.00% (ZAR) for the month while the Resi-10 gained 3.1% (ZAR) for the month.
On the economic front, South Africa’s August headline inflation eased to 4.4% year-on-year, down from 4.6% in July—the lowest since April 2021. This moderation was broad-based, with energy prices declining from 12.1% to 11.5% year-on-year. However, inflationary pressures persisted in food, alcoholic beverages, and tobacco categories. Core inflation, which excludes food, fuel, and electricity, softened to 4.1% year-on-year from July’s 4.3%, marking the lowest level since May 2022. In response to slowing inflation, the SARB’s Monetary Policy Committee lowered the repo rate by 25 basis points to 8% per annum.
As we close out the third quarter of 2024, the global markets have demonstrated resilience amid shifting economic conditions, driven by interest rate adjustments, fiscal stimulus measures, and evolving geopolitical factors. While there have been periods of volatility, the overarching trend has been positive across equities, bonds, and key commodities.
Regarding our house view, we continuously monitor macroeconomic and market factors to ensure that our portfolio construction is optimally positioned for both current and future conditions. Throughout the year, the Sierra Global Fund has maintained exposure to major AI companies such as NVIDIA, Microsoft, and Amazon, recognizing the significant potential in this sector. However, our asset allocation strategy is forward-looking. In response to recent interest rate cuts, we have strategically allocated to the equally weighted MSCI World Index, as we believe the market will broaden from its previous narrow leadership.
The Sierra Global Fund gained 2.8% (USD) for the month and 10.15% (USD) year to date, reflecting our proactive approach and commitment to navigating shifting market dynamics while positioning our portfolios for long-term growth. We will continue to adapt our strategy as needed, aiming to capture value in both growth and emerging sectors as global economic conditions evolve.