EasyAssetManagement reports that July's global markets were marked by a rotation from large-cap tech to smaller companies, resilience in Japan’s economy, and ongoing challenges in China. Discover the key trends that shaped the month, including the US market's cautious optimism and the shift in investor focus.
July proved to be a month of contrasts in global financial markets. While the broader market displayed a degree of resilience, a significant rotation away from large-cap tech stocks towards smaller companies was evident.
US Markets: Cautious Optimism
The US market delivered a lacklustre performance, with the S&P 500 edging down slightly. Investors remained focused on interest rate expectations and profit-taking opportunities. The Federal Reserve maintained its stance on holding interest rates steady, signalling a cautious approach to monetary policy easing. While the market initially priced in more aggressive rate cuts, expectations have moderated somewhat.
Despite the uncertain interest rate environment, there is growing optimism about a "soft landing" for the US economy. Economic data has shown resilience, with GDP growth exceeding expectations. However, the full impact of monetary tightening is yet to be fully realized, and the outlook for 2024 and 2025 remains clouded by uncertainty.
Japan's Economy Shows Signs of Resilience
Japan's economy exhibited mixed signals in July. While the manufacturing sector contracted, the service sector expanded, contributing to an overall improvement in business activity as measured by the Jibun Bank Flash Japan Composite PMI.
Consumer spending remained robust, with retail sales growing for the 26th consecutive month. Rising wages continue to support consumption. Additionally, Japan recorded a trade surplus for the second time this year, driven by strong export performance, especially to China and the US.
The unemployment rate held steady at 2.6%, and inflation remained unchanged at 2.8%. Notably, the Bank of Japan made a significant policy shift by raising its benchmark interest rate to 0.25%, marking the end of its years-long negative interest rate policy.
China Struggles
China's economy continued to face challenges, with the MSCI China Index falling by 3.7%. The highly anticipated Third Plenum meeting failed to deliver concrete measures to address the country's economic woes, including sluggish consumer spending, a property slump, and mounting local government debt.
Global Market Trends
The tech-heavy Nasdaq 100 experienced a significant pullback as investors rotated capital towards smaller companies, reflected in the strong performance of the Russell 2000. This shift suggests growing investor appetite for value and cyclical stocks.
Inflation has shown signs of moderation, with the US CPI coming in below expectations. However, core services inflation remains persistent, indicating that the battle against inflation is not yet won.
In conclusion, July was a period of market flux. A shift away from tech giants toward smaller companies marked a key trend, while the US economy demonstrated resilience amid interest rate uncertainties. Japan's economy showed improvements but faced challenges from its central bank's policy shift. China's economic struggles persisted, weighing on global sentiment.
Source: Bloomberg
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