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James McManus, Chief Investment Officer, looks at market performance in June. He covers how we are currently positioned across our portfolios, and the opportunities that potential cuts in interest rates would bring.
How did global equity and bond markets fare in June, as we reach the half way point of 2024?
June offered investors mixed returns across global equity markets. At a broad level, global stock markets rose by 2.8% in pound sterling terms, yet many major European stock markets delivered negative returns.
The performance of the global index was largely driven by performance in both the US and Japanese stock markets, rising 3.6% and 1.7% respectively. In the US, the technology sector – particularly mega-cap technology-oriented stocks such as Meta and Amazon – led the way once again.
In the UK, the FTSE 100 finished marginally lower with losses of 1%, while medium-sized companies (or mid-caps) declined 1.9%.
Emerging markets, meanwhile, delivered relatively strong returns, up 4.3% in June, with Chinese stocks muted in contrast to wider emerging markets. Returns in Asia were led by Taiwan, up 12.1%. This is home to one of the world’s biggest computer chip manufacturers, Taiwan Semiconductor Manufacturing Company.
Global bond markets also enjoyed positive returns in June, led by gains in government bonds as encouraging inflation data in the UK and US saw bond yields fall. Corporate bond markets delivered small positive returns.
How are Nutmeg portfolios positioned going into the second half of 2024?
We remain optimistic on the outlook for equity markets with a preference for the US and Japan. That means we are currently holding more equities, in lieu of bond exposure across our managed portfolios.
We remain slightly underweight the UK relative to our long-term allocation, due to the lingering impact of inflation, and sluggish UK economic growth. The first quarter of the year confirmed that the recession was over but the economy hasn’t seen meaningful signs of acceleration, with mixed signals in recent business and economic activity.
Within emerging markets, we have tilted our exposure away from the Chinese economy where we see domestic growth drivers as challenged despite our expectation of a broader pick-up in global trade activity. That has historically has been beneficial to trade-centric emerging markets, but China’s domestic woes, and the potential for the upcoming US election to resurface frictions with its largest trading partner, mean we favour emerging markets outside of China.
More reassuring inflation data has raised expectations for central banks to cut interest rates in 2024. What opportunities will that present for investors?
High interest rates act like a brake on the economy – they slow activity and consumer spending. As interest rates start to fall, there’s the prospect of increased economic activity.
A simple example here is the housing market: higher interest rates increase mortgage costs, and the rate of activity naturally slows. As interest rates and consequently mortgage rates fall, we should see a pick-up in housing market activity – people buying and selling homes – which in turn generates further economic activity through knock-on effects. From DIY and furniture stores to legal firms and estate agents, a pick-up in housing market activity will stimulate further growth.
That increased economic activity is exactly why central banks want to ensure they are confident inflation is under control before they reduce interest rates. Act too early and inflation could rise again as a result. Historically, high interest rates have constrained economies to the point of recession, but this time appears different. It’s likely that central banks in the US and UK will soon be cutting interest rates - following the European Central Bank's lead, with its first cut in June - with the global economy already on a growth footing.
So, we’re positioning our portfolios to tilt towards sectors and markets that should benefit from a strengthening economic recovery, and continued growth leadership from technology-oriented businesses.
The Nutmeg investor update is also available as a podcast. Listen to this month's update below.
About this update: This update was recorded on 2nd July. All figures, unless otherwise stated, relate to the month of June.
Risk warning
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not reliable indicators of future performance.