Nutmeg Quarterly Market Update Q3 2024

The quarter in review

The third quarter (Q3) of 2024 saw major central banks prioritise growth. Most major asset classes generated healthy returns despite several bouts of market volatility.

Economic data released through Q3 suggests that central banks in the US, Europe and UK have been successful in tackling elevated inflation with higher interest rates. Over the period, the policy focus therefore shifted from bringing inflation under control to fostering economic growth.

More than a year on from its last interest rate hike, the US Federal Reserve kick-started its cutting cycle with a 0.5% reduction in its policy rate in September. With the unemployment rate having drifted up from a low of 3.4% in April 2023 to a high of 4.3% in July, the Fed has made it clear that it does not want to see any further weakening and is keen to make interest rates less restrictive.

The European Central Bank delivered a second rate cut in September, taking interest rates from 3.75% to 3.5%, while the Bank of England embarked on its own easing cycle with a 0.25% cut at its August meeting.

Meanwhile, policymakers at the People’s Bank of China announced a raft of new stimulus measures in a bid to reverse the economy’s persistent slowdown. The news triggered a sharp rally in Chinese equities.

"It was the coordinated nature of the policy changes in September that caught investors by surprise and sent prices higher. We remain unconvinced that current policy is sufficient to overcome structural problems faced by the Chinese economy and markets." 

Pacome Breton, Nutmeg Investment Team

Equities in Q3

• Developed market equities (MSCI World) climbed 6.5% in the quarter, while emerging market equities (MSCI EM) grew 8.9%.
• The UK FTSE All-Share index, which is an aggregation of large, mid and small-cap stocks, was up 2.3% in the quarter. UK data has generally been more upbeat so far in 2024, although consumer confidence did fall in September in advance of October’s UK budget announcement.

Read more: Is the UK really the sick man of Europe?

• The S&P 500 continued its long march higher, returning 5.9% over the quarter. 
• Asia ex-Japan was the top performing major region, returning 10.6% over the quarter. Having treaded water for much of the quarter, Asian stocks rallied strongly towards the end of September.
• European equity returns were more muted, Europe ex-UK delivering 1.6%, as economic data continues to look sluggish.

US equity laggards play catch up   

"Encouragingly for US 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."

Hugh Gimber, Global Market Strategist, J.P. Morgan Asset Management

Bonds in Q3

• US government bonds returned 4.7% over Q3, outperforming UK government debt which gained 2.4% and German government bonds which rose by 3.4%. Italian government bonds rose by 5.2%.
• Global investment grade bonds delivered a robust return of 6.3% over the quarter, outperforming high yield debt.
• European and US high yield delivered gains of 3.5% and 5.3% respectively.
• Because many bonds provide a fixed rate of income, interest rate expectations are important to their value. If interest rates fall, it is typically supportive of bond prices.   

US interest rates to fall faster? 

"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."

Hugh Gimber, Global Market Strategist, J. P. Morgan Asset Management

How we are positioning your portfolios

• Our multi-asset portfolios retain an overweight to equities.
• That overweight is tilted towards US technology stocks. Elsewhere we are overweight non-Chinese emerging equities given our views on global trade.
• We are overweight high yield bonds versus government bonds, given the pro-risk environment.
• Bond prices are sensitive to changes in interest rates. The sensitivity of the portfolio to interest rates changes is the same as the benchmark we use, or "neutral". 

Thoughts from the investment team

"We expect US economic resilience and rising global trade to benefit the global economy. This is a good backdrop for risk assets, and we retain an over-allocation to equity markets."

Brad Holland, Nutmeg Investment Team

"Inflation has fallen from 8-10% highs to closer to 2% targets across developed economies. That has given central banks licence to begin easing monetary policy. UK and US bonds are offering good yields at present, helping to diversify portfolio returns."  

Bola Onifade, Nutmeg Investment Team

Find out more:

The performance of your portfolio will also be influenced by your chosen investment style, your tax wrapper, and how long you've been invested. You can see the performance of your individual portfolio in the app, and to learn more about returns, click here.

For regular analysis of markets, the economy, and the outlook for investors, visit the Insights tab on our website or our YouTube channel.

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 a reliable indicator of future performance. We do not provide investment advice in this update. Always do your own research.