What Long-Term Investors Should Know About September 2024’s Market Trends

As a long-term investor, staying informed about global market movements is crucial for making sound decisions.

September 2024 was a month of robust performance across global markets, driven by aggressive central bank policy actions, especially in the U.S. and China. These stimulus efforts, coupled with easing inflationary pressures, propelled equities to new heights, while bond markets also showed strong resilience. Here’s a comprehensive review of the trends and developments that shaped the month across both developed and emerging markets.

• U.S. Rate Cut: The Federal Reserve surprised markets with a larger-than-expected 50bps rate cut, boosting investor confidence.
• Chinese Stimulus: China's historic market rally was fuelled by a significant government stimulus package.
• Inflationary Trends: Inflation rates cooled in the U.S. and Eurozone, while rising in China.
• South African Outperformance: South African markets continued their strong performance, with gains across equities, bonds, and listed property.
• Emerging Markets Rally: Emerging markets, led by China and India, experienced significant growth.
• Sector Rotation: A shift away from technology stocks towards real estate and utilities was observed.

U.S. Federal Reserve Aggressive Rate Cut Fuels Optimism
In a surprise move, the U.S. Federal Reserve cut interest rates by 50 bps, lowering the benchmark rate to 5% double the anticipated 25bps cut. This aggressive monetary easing marked a pivotal shift, sending positive signals to investors who were wary of a possible recession. U.S. equity markets responded with strong gains, as the S&P 500 posted its best year-to-date performance in decades. Notably, the equal-weighted S&P 500 outperformed its market-cap weighted counterpart, signaling a broader rally across various sectors.

* Source: Bloomberg

Small-cap stocks, represented by the Russell 2000, also benefited from the lower interest rate environment, surging in September. However, tech stocks, particularly the “Magnificent 7”  that had led gains earlier in the year, underperformed due to disappointing earnings reports. Despite this, the broader market rally highlighted renewed investor confidence in the strength of the U.S. economy. Federal Reserve Chair Jerome Powell emphasized that further rate cuts would be data-dependent, particularly in response to labor market conditions, which remained robust with unemployment dropping to 4.2% in August.

China's Historic Market Rally Due to Stimulus
China’s equity markets posted a historic rally, with the Shanghai Composite recording its best weekly performance since 2008. The surge, which saw Chinese stocks gain 16% in the last week of September, was largely fueled by the Chinese government’s largest stimulus package in over a decade. Key measures included easing mortgage restrictions and providing liquidity support for capital markets, which resulted in significant inflows into Chinese equities.

However, China’s broader economic outlook remains uncertain, particularly in its real estate sector, which continues to struggle with debt crises. Despite these structural issues, the short-term market rally provided much-needed relief, although concerns linger about whether these stimulus measures will be enough to meet the government’s 5% GDP growth target for 2024.

* Source: Bloomberg

Inflationary Trends Cool in the U.S. and Eurozone, Rising in China
Inflationary pressures eased across developed markets, with U.S. inflation dropping to 2.5% by the end of August, its lowest level since February 2021. This marked the fifth consecutive month of declining inflation, with core services and shelter prices showing signs of softening. Similarly, inflation in the Eurozone fell to 1.8% year-on-year by the end of August, dipping below the European Central Bank’s (ECB) 2% target. The ECB responded with its second rate cut of 25bps, further aligning with market expectations.

On the contrary, China experienced an uptick in inflation, which rose to 0.6% in August, the highest since February. While inflation levels remain relatively low compared to other major economies, the increase highlighted domestic challenges in post-pandemic recovery. Labor market strains and a sluggish real estate sector continue to weigh heavily on China’s overall economic outlook.

*US & Eurozone Left Axis, China Right Axis.
* Source: Bloomberg

South African Markets Boast Another Strong Month of Performance
September 2024 was another stellar month for South African markets, with key asset classes continuing their positive trajectory. The All Share Index gained 4.0%, bolstered by heavyweights such as BHP Group and Prosus, which surged by 14.5% and 14.3%, respectively. The Top 40 Index mirrored this strong performance, also climbing 4.0% for the month.

South African bonds enjoyed their sixth consecutive month of positive returns, delivering 3.9% for September and 10.5% for Q3. A stronger rand, which appreciated significantly to below R17.20 for the first time since early 2023, supported bond yields as foreign inflows continued for a third consecutive month.

Listed property also saw impressive gains, rising by 5.0% for the month and 18.7% for Q3, making it the best-performing local asset class year-to-date. Strong foreign interest, coupled with improving sentiment in the property market, has fueled the sector's growth.

The SARB made a cautious decision to cut the repo rate by 0.25%, bringing it to 8%. While inflation continued its downward trend, falling to 4.4% in August and marking the first time it was below the SARB’s target range in three years, the central bank refrained from a more aggressive rate cut. Concerns around rising electricity prices, wage growth, and global geopolitical tensions were cited as key risks.

China and India Lead the Emerging Markets Rally
Emerging market equities had a strong quarter, with China leading the way after its stimulus measures. The MSCI Emerging Markets Index rose 7.9% in Q3, outperforming developed market indices. Indian equities also experienced significant gains, driven by robust domestic growth prospects and increased retail investor participation. Latin American markets, particularly Brazil, posted solid returns, supported by favourable commodity prices and stable political conditions.

A Shift Away from Technology
A notable theme in September was the sectoral rotation away from technology, which had led the markets for much of 2024. Real estate and utilities emerged as the top-performing sectors, benefiting from lower interest rates. The IT and communication services sectors, in contrast, lagged due to underwhelming earnings results and concerns over high valuations.

Energy stocks underperformed as global economic growth showed signs of slowing and demand for commodities, particularly oil, weakened. Inflation-sensitive sectors like real estate and utilities thrived, as lower interest rates provided favourable conditions for traditionally defensive investments.

Outlook: A Soft Landing or Continued Volatility?
As the final quarter of 2024 approaches, markets are cautiously optimistic about the prospect of a soft landing for the U.S. economy. The combination of easing inflation, central bank rate cuts, and strong labour markets supports the view that the economy will avoid a recession. However, risks remain, particularly in real estate and credit markets, where the impact of earlier interest rate hikes is still being felt.

In China, while the stimulus has provided a temporary boost, long-term structural challenges in the economy especially in the real estate sector pose significant headwinds. Investors will closely watch for further fiscal and monetary policy measures as the Chinese government tries to stabilize growth.

Resilience Amid Global Volatility
September was a landmark month for global markets, characterized by decisive central bank actions and strong stimulus measures that buoyed equities and bonds alike. While the U.S. and China led the charge, emerging markets also posted strong gains. The dovish stance of major central banks, combined with a positive economic backdrop, provides an optimistic outlook for the remainder of 2024, although risks from rising geopolitical tensions and sector-specific challenges remain. Investors will need to navigate these complexities, making thematic portfolio allocations a key strategy moving forward.

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