Market Updates

In the three months to the end of September 2024, global share market performance was positive, supported by falling inflation, the anticipation of central bank rate cuts and healthy corporate revenues. Fixed income markets saw yield spreads (the difference between the yield of government bonds and corporate bonds) tighten but attractive yields were still on offer for bond investors.

As inflation has been falling across developed economies, the US Federal Reserve, Bank of England, ECB, and other major central banks have all signalled a gradual lowering of interest rates. This is good news for investors in shares because lower interest rates make it less expensive for companies to service existing debt and finance investment that can grow profits, and markets have responded positively.

The US led the way, where the growing likelihood of a soft-landing for the economy – where economic growth slows but a recession is avoided – boosted investor confidence. The US Federal Reserve caused some consternation in July as it failed to deliver an expected interest rate cut, holding back in order to make sure inflation was falling. By the time the cut arrived in September, markets had come to terms with the idea of a slower program of rate cuts, and solid corporate profits, especially in Artificial Intelligence-themed mega-cap (companies with a market capitalisation over $200bn) stocks, added to the positive sentiment.

Europe experienced a similarly resilient economic backdrop, with positive albeit lower returns than across the Atlantic. In Asia, Japan has been a standout performer, with economic activity and corporate profits exceeding expectations, while China has struggled to meet growth targets.

The UK faced a somewhat tougher time, with economic growth hovering around the zero point, and inflation proving stickier than elsewhere. Share market returns were similarly challenged, with returns more or less flat. The election of a new Labour government in July did little to change the overall mood, but the potential for a rerating driven by fresh political ideas remains.

Bonds continue to provide good opportunities for investors. Government bond yields are above expected inflation in the US, while corporate bonds are also providing higher than average yields.

One standout area has been good quality high-yield bonds. High yield bonds provide a higher rate of return than lower risk bonds but come with a greater chance that the issuer might not be able to pay the bond back (known as default). The improving economic backdrop means that bond defaults are less likely, and holders of high-yield bonds are getting a higher return for a lower level of risk than is typically the case.