Aviva’s market analysts have released their latest update for Q2 2024.
In it, they outline three recent investment trends shaping the market outlook for the near future:
The Magnificent Seven outshines rest of US market
The US equity market soared to record highs, largely propelled by the exceptional performance of the ‘Magnificent Seven’, which includes top companies such as Apple, Meta, and Nvidia. Nvidia, a semiconductor chipmaker, was particularly noteworthy, briefly becoming the largest public company worldwide by surpassing Microsoft and Apple, following its impressive May earnings report. Over the past decade, Nvidia has delivered an incredible 27,000% return, primarily due to its early strategic investments in the AI chips market.
However, excitement was limited outside this group. The ‘Magnificent Seven’ heavily influenced overall market returns. For instance, the equally weighted S&P 500, which provides a more comprehensive view of the broader US equity market, reported a negative return in the second quarter.
This highlights the significant impact of leading tech firms on positive market outcomes. Moving forward, investors hope to see positive returns extend to other sectors, rather than being narrowly driven by these seven companies.
Interest rate cuts may be few and far between
Inflation and potential interest rate cuts were major concerns for investors. In the US, the annual PCE inflation rate, preferred by the Federal Reserve, rose to 2.7% in March from 2.5% in February, suggesting persistent inflation.
This, along with a robust economy, led the Fed to hold off on rate cuts in Q2, now projecting only one cut this year, a shift from earlier predictions of cuts starting in March.
In the UK, the Bank of England kept its interest rate at 5.25% in June, despite indications that inflation had met the 2% target. Investors expect two rate cuts from the BoE this year, with the first possibly in August.
Meanwhile, central banks like the ECB and the Bank of Canada made cautious 25 basis point cuts in June, with the ECB lowering its deposit rate to 3.75%. Overall, investors now anticipate fewer rate cuts this year.
Elections at the forefront of news cycle
Politics is set to dominate in 2024, with around 50% of the global population voting this year. The European Parliament elections in June underscored this, revealing increased support for right-wing parties like Marine Le Pen’s National Rally.
This was followed by President Macron’s unexpected call for a snap election, causing market volatility and a decline in French equity and bond values. Despite a left-wing alliance winning the most seats in the July 7 runoff, no party secured an outright majority.
In the UK, the general election on July 4 brought no surprise to the markets, as Labour’s anticipated victory occurred without incident. The focus now shifts to the US presidential election in November, a critical event for investors.
The initial debate between Joe Biden and Donald Trump on June 27 saw Trump retaining a lead in some polls, heightening concerns about Biden’s performance and increasing political uncertainty.
Read the full report here: