The Pinnacle: June 2024
June 2 0 2 4 • I S S U E 42
June Markets
As we have passed the halfway point of 2024, global markets have shown resilience amidst a backdrop of evolving economic conditions. This monthly update delves into market performance across various regions, examining the trends and factors driving market movements in the US, Eurozone, UK, and Asia, as well as the commodities market.
US Markets
The US stock market continued its upward trajectory in the second quarter of 2024, buoyed by strong corporate earnings and a moderating inflation outlook. The S&P 500 recorded a gain of 4.3% over the quarter, driven primarily by the tech-heavy "Magnificent Seven" companies, which saw earnings growth exceeding 50% year-over-year. In contrast, the broader S&P 493 (S&P 500 excluding the Magnificent 7) posted a modest 3% growth in earnings-per-share (EPS). While still lagging behind the Magnificent 7, some analysts believe this was still an important quarter for the S&P 493, marking the start of a broader earnings recovery.
The Federal Reserve's stance on interest rates has been a key focus, with expectations of rate cuts later in the year, partly due to the moderation in core PCE inflation to 2.6%. This could potentially create a positive environment for equities, as the market anticipates a soft landing for the economy.
Eurozone
The Eurozone's economic outlook has brightened, with industrial activity picking up and inflation showing signs of moderation. European equities rose by 0.6% in the second quarter. Despite only a small rise, somewhat hampered by political volatility, it was also supported by robust corporate earnings and improved economic sentiment. Inflation in the Eurozone has trended lower, giving the European Central Bank (ECB) more room to move on monetary policy, with further potential rate cuts on the horizon, after delivering a 25 basis-point cut in June.
UK Markets
UK equities had a strong second quarter, with the FTSE All-Share rising by 3.7%. The market's performance was underpinned by a decline in headline inflation to 2.0% year-over-year, down from 2.3% previously. This reduction in inflation, driven by falling energy prices, has alleviated some of the cost pressures on businesses and consumers alike.
The Bank of England's cautious approach to monetary policy, with potential rate cuts expected later in the year, has also provided a supportive backdrop for the equity market. The financial and consumer sectors were notable outperformers, reflecting improved confidence in the UK's economic prospects.
Asia Emerging
Emerging markets in Asia displayed strong performance in the second quarter. The MSCI Asia ex-Japan index gained 7.3% over the quarter, with strong gains in South Korea and Taiwan adding to strong performance in China. The Chinese equity market was buoyed by factors such as more aggressive government support for the region’s property sector as well an increasing amount of share buy-backs.
Commodities
Commodity markets experienced varied trends in the second quarter of 2024. Gold prices ended the quarter up more than 5% as investors sought safe-haven assets amid global uncertainties. Brent crude oil prices fluctuated but settled around $85 per barrel, reflecting balanced supply-demand dynamics and geopolitical factors.
The first half of 2024 has demonstrated the resilience of global markets against a backdrop of moderating inflation and improving economic indicators. While uncertainties remain, particularly regarding the timing and impact of monetary policy adjustments, the overall outlook for the second half of the year remains cautiously optimistic. Investors should stay vigilant and monitor evolving market dynamics, however, maintain still maintain a balanced approach and avoid overreaction to short-term market fluctuations.
June 2024 Elections Update: Key Events and Potential Economic Impacts
June 2024 was a pivotal month for elections across the United States, the United Kingdom, and Europe, each carrying significant implications for their respective economies. As these nations brace for potential shifts in policy and leadership, markets and investors are closely monitoring the developments and their likely economic outcomes.
United States: Primaries Set the Stage for November
In the United States, June marked the culmination of the primary season, with both major political parties finalizing their candidates for the upcoming presidential election in November. The primary elections saw a mix of traditional and progressive candidates vying for the nominations, reflecting a diverse array of political agendas. Barring any unforeseen circumstances, the US presidential candidates are known to be former president, Donald Trump, on the Republican side, and current president, Joe Biden, on the Democrat side.
Economic Implications
Market Stability: The clarity brought by the finalisation of candidates might offer some stability as markets digest the likely policy directions of the nominees. Historically, markets prefer certainty, and knowing the main contenders helps in assessing potential economic policies and their impacts.
Policy Proposals: Candidates' platforms are crucial in shaping investor expectations. Donald Trump has traditionally placed an emphasis on business-friendly policies, such as tax cuts and deregulation. On the other hand, Joe Biden has traditionally focused on healthcare reform, green energy investments, and increased taxation on the wealthy and corporations. Investors will hope for policies they believe could boost investor confidence and stimulate economic growth.
Consumer Confidence: The election narrative impacts consumer sentiment. Positive rhetoric around economic growth and job creation could bolster consumer spending, which is a key driver of the U.S. economy. Conversely, uncertainty or negative campaigning might dampen consumer confidence. The candidates' ability to present a clear and optimistic vision for the future will be critical in maintaining consumer morale.
United Kingdom: General Election Uncertainty
The United Kingdom’s political landscape experienced some turbulence in June 2024 as the country headed towards a general election on July 4th. The election comes amid ongoing debates about the UK’s post-Brexit relationship with the European Union, healthcare reforms, and economic recovery strategies post-pandemic. Here are some of the potential economic implications with the Labour Party being widely expected to end the Conservative Party’s 14-year rule.
Economic Implications
Brexit Continuity: The election's outcome could redefine the UK’s trade and economic relations with the EU. A government favouring closer ties might reduce trade barriers and foster economic growth, while a hardline approach could reintroduce uncertainty around tariffs and market access. The Conservative Party, led by Prime Minister Rishi Sunak, advocates for a firm but pragmatic approach, while the Labour Party, under Keir Starmer, promises a more collaborative stance with the EU.
Public Spending: The various party manifestos presented differing views on public spending. The Labour Party's plans for increased spending on healthcare, education, and infrastructure could stimulate economic growth, while the Conservative Party's more restrained fiscal approach might curb public debt but potentially slow down economic momentum. The balance between stimulating the economy and managing debt levels will be a key focus.
Currency Fluctuations: The British pound often reacts to political instability. The expected clear majority for the Labour Party might stabilise the currency. Investors are watching closely to see if the Labour Party gains a decisive mandate, as this will possibly reduce market volatility and provide a clearer economic direction.
Europe: Parliamentary Elections and Policy Shifts
Several European countries, including France and Germany, held parliamentary elections in June 2024. These elections were crucial in determining the future direction of the European Union’s economic and political strategies, especially in the context of the ongoing recovery from the economic impacts of the COVID-19 pandemic and the war in Ukraine.
Economic Implications
EU Integration: The results could influence the pace of European integration. In France, Emmanuel Macron’s La République En Marche! party and its pro-EU stance are likely to push for deeper fiscal and political integration. Similarly, in Germany, the success of the Green Party and the Social Democratic Party (SPD) could lead to more cohesive and streamlined policies that support economic resilience across the region.
Regulatory Environment: The composition of the European Parliament impacts regulatory policies across various sectors, including technology, finance, and energy. In Germany, the success of the Greens might lead to progressive regulation in these areas, fostering innovation and growth. On the other hand, in France, a strong showing by Marine Le Pen’s National Rally could signal a push for more stringent regulations, posing challenges for businesses. Balancing regulation with market freedom will be crucial.
Economic Recovery Plans: Governments' commitment to EU-wide recovery plans, including the distribution of recovery funds and investment in green technologies, will be critical. In France, Macron’s administration is expected to continue its emphasis on these initiatives. In Germany, the coalition of Greens and SPD is likely to prioritise sustainable growth through green investments. Effective utilisation of these funds can drive sustainable growth, whereas delays or inefficiencies could hinder the recovery process. The emphasis on green technologies is particularly significant as Europe aims to lead in global sustainability efforts.
Both upcoming and current elections in the United States, United Kingdom, and Europe have set the stage for potential shifts in economic policies and investor sentiment. While political uncertainty often brings volatility, the long-term economic outlook remains cautiously optimistic. Governments’ responses to pressing issues such as economic recovery, regulatory reforms, and international relations will be critical in shaping the economic landscape in the coming years. Investors should stay informed and maintain a balanced perspective, focusing on long-term goals rather than short-term market fluctuations.