In the second quarter of 2024, the performance of global stock markets was mixed, driven by several geopolitical and economic events.
In the United States, even though the economy showed signs of slowing down, stock market sentiment stayed generally positive. This optimism was largely due to anticipations that rate cuts would be coming from the Federal Reserve as inflation signs waned and hiring slowed. While the Fed initially took a tough stance to continue combating inflation, as the quarter progressed, there were increasing signs of a more accommodating policy. Investors grew hopeful for interest rate cuts by the end of the year, which bolstered the stock market and helped keep U.S. Treasury yields stable.
US Stocks had another above average quarter with Large Growth stocks leading the way while Small Value stocks sank. AI-related firms continued to dominate in the US, driven by strong earnings and investor enthusiasm for growth in the sector. Given investor focus on the growing AI industry, it should be no surprise that Growth stocks outperformed Value stocks in the short term, at least domestically. However, the same cannot be said for international equity markets, where Value and Small Cap stocks had better performance. As anyone that has spoken to me about expected returns knows, Value and Small Caps (along with Profitable companies) are where we expect the higher returns over time. But that doesn’t mean those higher returns always appear in shorter periods, which speaks to the continual importance of diversification.
While REITs continued their Q1 trend of negative performance, certain real estate sectors vastly outperformed others, with returns higher than the stock market. These would be Apartments, Healthcare, and Residential returns, showcasing that broad performance generalizations lose the nuance within each asset class.
International stocks were largely positive in local currency returns, but negative in dollar terms due to the continued strength of the Greenback. Value stocks were the best performer and Small Caps were the worst. European markets faced volatility throughout the quarter, particularly due to political uncertainty in France and broader European elections. These factors introduced significant fluctuations, with French markets in particular experiencing notable declines. UK markets showed resilience, supported by a stable economic environment.
Generally, emerging markets returns were impressive in both local currency and US dollar terms. Small Cap stocks were the leaders while Growth stocks were the laggards. India’s equity market was a standout, showing significant gains distributed across various sectors, boosted by both domestic and foreign investments. This contrasts with the gains seen in domestic markets, which were mainly isolated in the Technology and Communication Services sectors, with other sectors underperforming in comparison.
Commodities has modest returns in the quarter with Coffee and Zinc delivering the highest returns while Lean Hogs and Cotton were the worst performers.
Interest rates ticked up in Q2 while the curve remained inverted with 1-Month US Treasury Bills yielding 5.47% while the 10-Year US Treasury Note yielded 4.36%.
During the first half of 2024, we began incorporating some alternative investments in some portfolios. Overall, returns were slightly negative for the quarter. Reinsurance was the biggest contributor while Market Risk Transfer strategies were the biggest detractor.
If you have concerns about your current strategy and investments, get in touch to review your plan and portfolio. In the meantime, you can see the slides below for a visual review of Q2 2024.
