Market review
A summary of how financial markets performed during the third quarter of 2024.
It was a good quarter across the board for investment markets with equities in the US, Europe and New Zealand finishing higher, while bond prices were also higher, benefiting from central bank interest rate cuts.
Global markets
It was another strong quarter for US equity markets with most indices trading to record highs, while European markets also rose, but gains were more limited. The strong showing in US share markets were helped by an interest rate cut by the Fed, while robust GDP (gross domestic product) figures increased the likelihood that the economy would achieve a soft landing, where inflation falls to its target rate without a significant decline in growth or jump in the unemployment rate. For the quarter, the S&P 500 Index rose 5.9%, while the Nasdaq 100 Index was up 2.8%, while in Europe, the Euro Stoxx 50 was up 2.4%.
Meanwhile, Asian markets made a strong comeback late in the quarter after the People’s Bank of China (PBOC) announced a stimulus package to help alleviate deflationary concerns and shore up the flailing property market. The package included interest rate cuts and a reduction in the reserve requirement ratio (RRR) – the amount of cash banks must hold as reserves – that should free up about 1 trillion yuan for lending. After a sell-off in August and early September, the Shanghai Composite had a big rally late in the quarter to close up 14.3%.
Bond markets delivered strong returns over the quarter. With inflation in the US and Europe continuing to slow, central banks begun cutting interest rates – a scenario where bonds tend to outperform. The Fed delivered a surprising 50 basis point cut, while the European Central Bank (ECB) followed up its June interest rate cut with a second 25 basis point cut.
New Zealand market
New Zealand equities bounced back from a challenging second quarter to finish the third quarter up 6%. The index reached a two-and-a-half-year high.
The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 25 basis points in August, and 50 basis points in October, its second cut since the pandemic emergency cut in 2020. The cut came as economic data showed the local economy continues to struggle.
Weak economic data included a 1.2% decline in Q2 retail sales, while the unemployment rate rose to 4.6%, the highest level in more than three years. Meanwhile, the economy contracted by 0.2% in the three months to June 2024. Primary industries continued to weaken, with mining dropping 3.7% and the agriculture, forestry and fishing sectors down 1.4%.
With inflation trending in the right direction, it appears the RBNZ is set for another interest rate cut in 2024 and several more in 2025.
Important information
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Past performance does not indicate future performance. The actual performance realised by any given investor will depend on many things, is not guaranteed, and may be negative as well as positive.
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