Commentary
Equity markets go to extremes but come out ahead
Our August 2024 monthly market commentary
Equity markets go to extremes but come out ahead
Global equity markets recorded positive returns in August amid periods of volatility, particularly at the beginning and end of the month. Developed stock markets outperformed their emerging-market counterparts. The markets slumped in early August on growing recession worries due to relatively weak U.S. economic data and the Fed’s decision not to cut the federal-funds rate following its meeting at the end of July. Additionally, the PHLX Semiconductor Sector Index™, which tracks the performance of the 30 largest U.S.-listed semiconductor companies, fell more than 7% on August 1—its worst one-day percentage decline since March 2020—after Arm Holdings, a U.K.-based chipmaker, issued disappointing earnings guidance for the remaining three quarters of its 2025 fiscal year. This led to concerns that significant spending on artificial intelligence (AI) computing will not benefit several U.S.-based mega-cap companies as much as previously expected. Stock prices subsequently rallied later in the month as investors were encouraged by relatively weaker labour market data and signs of slowing inflation, which boosted optimism that Fed remains on schedule to cut interest rates in September.
The Nordic countries were the strongest performers among developed markets in August, led by Finland and Sweden. Europe also performed well due mainly to strength in Spain, Italy, and Switzerland. The Far East registered a relatively smaller gain and was the primary market laggard, attributable largely to underperformance in Japan. The Association of Southeast Asian Nations (ASEAN) comprised the top-performing emerging market in August, bolstered mainly by strength in the Philippines, Indonesia, and Malaysia. Conversely, the Latin America ex Brazil and Europe regions were the weakest emerging-market performers for the month, hampered primarily by weakness in Mexico and Turkey, respectively.1
Global fixed-income assets, as measured by the Bloomberg Global Aggregate Bond Index, gained 1.4% in August. High-yield bonds were the strongest performers within the U.S. fixed-income market, followed by mortgage-backed securities (MBS), investment-grade corporate bonds, and U.S. Treasury securities. Treasury yields moved lower across the curve. Yields on 2-, 3-, 5- and 10-year Treasury notes fell by corresponding margins of 0.38%, 0.31%, 0.26%, and 0.18%, ending the month at 3.91%, 3.79%, 3.71%, and 3.91%, respectively.2 The spread between 10- and 2-year notes narrowed 20 basis points in August, resulting in a flat yield curve (which occurs when there is little or no difference between 10- and 2-year yields) at month-end—marking the first time in more than two years that the yield curve was not inverted at the market’s close. A flat yield curve generally is viewed as a sign of uncertainty about future economic growth.
1 All equity market performance statements are based on the MSCI ACWI Index.
2 According to the U.S. Department of the Treasury. As of 30 August 2024.
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