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Global equities gained in the third quarter despite pronounced volatility on several occasions.
Markets fell from record highs at the end of July after investors rotated away from large tech stocks. With investors growing more cautious about artificial intelligence, there was some movement away from the tech giants to smaller companies in anticipation of US Federal Reserve cuts.
With inflation cooling faster than expected, some investors shifted their money into smaller stocks on the expectation that the Fed could soon cut interest rates. This is because smaller companies tend to do well when rates are low because they typically rely more on borrowing to finance their growth.
While President Joe Biden dropped out of the 2024 presidential election and endorsed Vice President Kamala Harris, this had little overall impact on markets. This was largely because Harris is seen as the continuity candidate.
There was further volatility at the beginning of August over fears of a US recession, rising Japanese interest rates, and falling tech stocks led to a meltdown. The stock market turmoil began after new figures showed rising US unemployment, sparking fears of recession.
Japan’s Nikkei index suffered its worst day since Black Monday in 1987, dropping more than 12% before recovering its losses. The sharp drop in Japanese equities was partly due to the yen's appreciation against the dollar following the Bank of Japan's interest rate hike. US and European indexes also saw huge losses, but markets soon recovered after new US data calmed worries of a possible downturn.
Global markets welcomed the Fed’s decision to cut interest rates towards the end of the quarter, with US stocks soaring to record highs. Chinese stocks also surged after the Chinese government rolled out new stimulus measures to lift its economy.
In anticipation of a change in central banks cutting rates, we have seen a shift in government bond yields on both sides of the Atlantic. 10-year US Treasury bonds dropped below 4% in August for the first time since 2024’s opening week. It was also a similar story for UK government bonds, with yields dipping below 4% in August and staying until the end of the quarter.
After a period of high borrowing costs, solid growth, fading inflation and healthy employment, the US economy appears to be heading towards a soft landing, where the economy slows without a recession. Layoffs remain low, and a rapid rise in the unemployment rate has slowed. Strong US retail sales data has also boosted hopes the US economy will avoid recession.
The UK post-election economic bounce back failed to materialise, with the economy flatlining for the second month in a row during July. The good news is that UK jobs data is looking brighter, with unemployment falling, although pay growth has eased. UK retail sales picked up in July, helped by summer spending on sports equipment.
The Chinese government unveiled measures to boost the country’s ailing economy with new stimulus measures. China's economy continues to be weighed down by the property slump, low consumer spending, and unemployment. Industrial production rose by 4.5% in August compared with a year ago, down from July’s 5.1% growth. Investment in real estate has fallen, despite attempts by the government to revive the sector. Retail sales growth is also slowing, while youth unemployment has risen above 17%.
The euro area economy saw a 0.3% increase in the second quarter, matching the growth rate from the first quarter. Despite this steady overall performance, Germany’s industrial sector continues to struggle. Wage growth, closely monitored by the ECB, slowed during the second quarter, easing fears labour costs could spark an inflation rise. On the employment front, the labour market remains strong, with the unemployment rate slightly declining to 6.4% in July, down from 6.5% in June.
Equities
The third quarter of 2024 ended with healthy returns across most major asset classes, despite several bouts of market volatility. A combination of weaker US economic data, an interest rate hike from the Bank of Japan and thin summer liquidity saw stocks hit particularly hard in early August. However, the long-anticipated start of the Federal Reserve’s rate cutting cycle in September, along with a less hawkish tone from Japanese policymakers and new stimulus in China, helped to soothe investor concerns and support a strong rally in stocks into quarter end.
Asia ex-Japan was the top performing major region, returning 10.6% over the quarter. Having treaded water for much of the quarter, Asian stocks rallied strongly towards the end of September after Chinese policymakers announced a raft of new stimulus measures. While many of these measures have been seen in isolation over the last year, such as cuts to interest rates or reduced downpayment requirements for home purchases, the coordinated nature of September’s announcement was the clearest signal yet that Beijing stands ready to support the Chinese economy and markets.
Elsewhere in Asia, Japanese stocks found themselves at the other end of the rankings, falling by 4.9%. The Bank of Japan’s July rate hike and comments from Governor Ueda that guided towards further rate hikes ahead were almost immediately followed by a very weak US labour market print. As interest rate differentials narrowed between the US and Japan, the Japanese yen appreciated sharply alongside an abrupt unwind of many “carry trades” that were reliant on cheap Japanese borrowing costs. A more reassuring tone from BoJ officials later helped Japanese stocks to pare losses, but the market still ended the third quarter in the red.
European equity returns were more muted, with markets in the UK and Europe delivering 2.3% and 1.6% respectively. Economic data reinforced the sluggish nature of the eurozone recovery so far this year, with Germany’s reliance on manufacturing acting as a particular drag amid both weak demand from China and rising competition from cheaper Chinese exports. UK data has generally been more upbeat so far in 2024, although consumer confidence did fall in September in advance of October’s UK budget announcement.
Overall, developed market equities delivered a 6.5% return over the period. The parts of the stock market that had previously suffered most from high interest rates generally outperformed, with global REITs, value stocks and small caps leading the way.
Conversely, growth stocks gave up some of their recent outperformance and commodities were stagnant over the 3 months.
Fixed income markets were buoyed by the prospect of lower rates. Government bonds and credit both delivered solid returns, while emerging market debt rallied by 6.1% over the quarter, taking it close to the top of the charts for fixed income sector performance year to date.
Commodity performance was much more muted, returning just 0.7% over the quarter. Amid growing concerns around the health of the global economy, Brent Crude oil prices fell by 17%, although gold did rally to new all-time highs.
Central banks are now shifting their focus away from controlling inflation to safeguarding economies and fostering growth. Only an increase in inflation would cause concern but even the current conflict in the Middle East shouldn’t be enough to disrupt its current path. There will be a few bumps, but no cause for major concern.
With US inflation falling and the economy cooling, the Fed decided to cut interest rates by half a percentage point in September, for the first time since March 2020. US inflation dipped below 3% for the first time since 2021 in July, with price rises going up by 2.9%, down from 3% in June. There was further good news for consumers when inflation fell to 2.5% in August.
The Bank of England cut interest rates from 5.25% to 5% in August for the first time in four years. The drop in borrowing costs is good news for homeowners and came after inflation held at 2% for a second consecutive month in June. The Bank hit a setback after inflation rose for the first time this year in July. Prices went up by 2.2% in the year to July, slightly above the Bank of England’s 2% target, and remained there in August.
If inflation in the UK can stay around 2% as the Bank cuts steadily, then all should be well. We don’t expect any sudden movements over the course of 2025.
The European Central Bank also lowered the deposit rate in September by a quarter of a percentage point to 3.50% after inflation fell to 2.2% in August. However, the ECB’s economists expect inflation to pick up towards the end of the year, before falling in 2025 and 2026.
TPP
For TPP, it was a great quarter. It goes without saying that if stocks were up, our trackers were up more. The TPP Trackers are great for a long-term portfolio as they copy global indices, but with a bit of leverage to heighten returns.
Due to high demand, we have now built even more and made them available to all investors. You can now not only link to the S&P 500, Dow Jones, Nasdaq and FTSE, but also the Russell 2000, the CAC in France, DAX in Germany and even the Stoxx Europe 600 (covering all of Europe in one go).
Each of these will only cost you £65 a month, regardless of how much you wish to invest. The strategies have one flat fee and that’s it. There are no commissions or performance fees – no hidden costs at all. What you see is what you get.
With that said, apart from our trackers outperforming, how did the rest of TPP’s strategies get on in Q3?
European equity returns were muted, with markets in the UK delivering 2.3% and only 1.6% in Europe. This created a slightly lower benchmark for our traders to beat this quarter. Some beat it by a little, and some by a lot. Here is this quarter's best trading strategy selection:
This is past performance and past performance cannot guarantee any future results. Capital at risk. The value of an investment can go down as well as up and you may get back less than you invested. If you are not sure about investing, seek independent advice.
As you can see, it was a strong quarter and as we now enter the final 3 months of the year, there are a few strategies battling it out for the top spot. Buffett has had another good year meaning our leveraged Buffett tracker is now up 16.9% in 2024. This is only just slightly ahead of The Bankers Fund which has posted gains of 16% on the year (this is only since May when the fund was built so a very impressive start).
Then near the top of the pile is our most popular strategy, Cambridge Futures, which has posted returns of 19.7% on the year. Just slightly ahead is one of our newer trading strategies: Long of Flat FTSE Tech Entry which is now up by over 20% this year.
To beat benchmarks is why we built TPP. It’s what investors are looking for and it’s what we are trying to provide.
Small differences in a portfolio’s annualised returns can make for big differences over time. Compounding consistent performance is a mantra we live by. At TPP we’re building portfolios for the future.
At TPP we utilise 3 approaches to build diversified, robust and benchmark beating portfolios for our clientele. A recent study suggested that over 80% of wealth managers underperform their market benchmark, whilst our most basic strategy (the leveraged tracker) is designed to make 1.5 x those very benchmarks. The 'Long or flats' are designed to miss many of the market retracements, and often outperform our leveraged trackers, and our active equity/long short strategies are designed to provide that speculative edge, and can even take advantage of a stock market that depreciates in value.
Combined, these 3 benchmark beating techniques could be your key to beating your market benchmark consistently.
If you're a client of ours, we hope Q4 will prove to be fruitful for you. If you're a prospect and a frustrated investor, contact our team for an absolutely FREE consultation call.
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Past performance is not a guarantee of future results. All investments involve a degree of risk and the value of your investment can go down as well as up.
The graphs, charts, and tables are provided for illustrative purposes only. Investing is subject to market risks. Investors acknowledge and accept the potential loss of some or all of an investment's value. These views represented are subject to change at the sole discretion of TPP.
