Monthly Commentary July 2024

July was a very strong month for both equity and bond markets, with mixed economic growth data contributing to a ‘month of two halves’. For the first half of the month equity markets continued to move higher but sold off slightly over the back half. The recent disinflationary trend continued, and this was a positive for growth and defensive asset classes with a number of key central banks signaling they were increasingly confident they can start easing interest rates soon. The gain in global equity markets was the third straight month of strong returns after weakness in April. Global and local bonds also posted solid positive returns over the month. The MSCI ACWI (NZD Hedged) was up 1.3%, and for once the ‘tech-heavy’ USA was not the standout market. The S&P500 was up just over 1% while the Nasdaq Index was down 1.6%. The leaders over the month were New Zealand, Australia and UK where equity markets were up 5.9%, 4.2% and 2.5% respectively. The Bloomberg Global Agg Index (NZD Hedged) was up 2.0% for July, and the NZ Composite Bond Index topped that with a 2.3% return. The Kiwi dollar fell back below U$0.60 over the month which provided a boost for unhedged investors. The MSCI ACWI Index (NZD unhedged) was up 4.3% for the month.

Inflation data in the US (CPI and PCE data) reaffirmed the disinflationary trend. Labour market data was more mixed, the unemployment rate edged higher again, but this points more to a continued normalisation from the post-pandemic period. GDP growth for the second quarter was not as strong as recent quarters, but still came in above expectations. As expected the Bank of Canada (BoC) became the first major central bank to implement consecutive rate reductions. They also signalled more cuts to come in the remaining meetings this year.

Previous laggards led the way in July in terms of sector leadership, with sectors most sensitive to interest rates doing well on the back of lower yields in bond markets. The Real Estate and Utilities sector were up over 6%, while Financials posted a 5.1% gain. Communications Services and Information Technology were the laggards, down 3.0% and 2.2% respectively, but both remain the strongest performers year-to-date.