Monthly Market Review - J.P. Morgan

Quarterly Market Review

Review of markets over the second quarter of 2024

1 July 2024

Author

Max McKechnie Global Market Strategist

The economic momentum of the first quarter of 2024 continued into the second, and the last three months were another positive period for equity markets. Initially, investors aggressively dialled back expectations for central bank rate cuts, as the US overheating worries that had taken root towards the end of the first quarter meant strong April data was poorly received by markets. But as the quarter progressed the worst of these worries abated, and soft-landing hopes revived. In Europe, economic momentum also remained positive as the effects of the cost-of-living shock continued to abate.

The price of this continued economic growth was sticky inflation and while investors' worries at the end of the first quarter proved overdone, services inflation remained obstinately above levels that are consistent with central bank targets. As a result, rates markets still expect far fewer cuts by Western central banks than they did at the beginning of the year.

Against this resilient backdrop, developed market equities delivered positive total returns of 2.8% over the quarter. These returns were concentrated in larger companies, while rate sensitive small cap stocks and REITS suffered from confirmation of the higher-for-longer interest rate environment. Conversely, fixed income investors had to endure another quarter of negative returns with global investment grade bonds delivering negative returns of -1.1%.

Exhibit 1: Asset class and style returns

2013

2014

2015

2016

2017

2018

Small cap 32.9%

Global REITS 22.9%

Growth 3.5%

Small cap 13.3%

MSCI EM 37.8%

Global Agg -1.2%

2019

2020

Growth Growth 34.1% 34.2%

2021

Global REITs 32.6%

2022

2023

YTD Q2 '24

Cmdty Growth Growth Growth 16.1% 37.3% 17.4% 6.4%

Value 27.5%

Growth 6.5%

Global REITS 0.6%

Value 13.2%

Growth 28.5%

Global REITS -4.9%

DM Equities 28.4%

MSCI EM 18.7%

Cmdty 27.1%

Value -5.8%

DM Equities 24.4%

DM Equities

12.0%

MSCI EM 5.1%

DM

DM

Equities Equities

27.4% 5.5%

Small cap 0.1%

Cmdty 11.8%

Small cap 23.2%

Growth -6.4%

Small cap 26.8%

DM Equities

16.5%

Value 22.8%

Global Agg

-16.2%

Small cap 16.3%

MSCI EM Cmdty

7.7%

2.9%

Growth 27.2%

Value 4.4%

DM Equities

-0.3%

MSCI EM 11.6%

DM Equities

23.1%

DM Equities

-8.2%

Global REITs 24.4%

Small cap 16.5%

DM

DM

Equities Equities

22.3% -17.7%

Value 12.4%

Value 6.6%

DM Equities

2.8%

Global REITS 2.3%

Small cap 2.3%

Global Agg -3.2%

DM Equities

8.2%

Value 18.0%

Value -10.1%

Value 22.7%

Global Agg 9.2%

Growth 21.4%

Small cap -18.4%

Global REITs 10.9%

Cmdty 5.1%

Value -1.0%

MSCI EM -2.3%

Global Agg 0.6%

Value -4.1%

Global REITS 6.5%

Global REITS 8.0%

Global Agg -2.6%

MSCI EM MSCI EM Growth -1.8% -14.6% 3.2%

Global Agg 7.4%

Cmdty MSCI EM Value -11.2% 18.9% -0.4%

Small cap 16.2%

MSCI EM MSCI EM -19.7% 10.3%

Small cap 1.8%

Small cap -13.5%

Cmdty 7.7%

Cmdty -3.1%

MSCI EM -2.2%

Global REITs -23.7%

Global Agg 5.7%

Global REITs -2.9%

Global Agg -1.1%

Global REITs -1.4%

Cmdty -9.5%

Cmdty -17.0%

Cmdty -24.7%

Global Agg 2.1%

Cmdty 1.7%

MSCI EM -14.2%

Global Agg 6.8%

Global REITs -10.4%

Global Agg -4.7%

Growth -29.1%

Cmdty -7.9%

Global Agg -3.2%

Small cap -2.6%

Source: Bloomberg, FTSE, LSEG Datastream, MSCI, J.P. Morgan Asset Management. DM Equities: MSCI World; REITs: FTSE NAREIT Global Real Estate Investment Trusts; Cmdty: Bloomberg Commodity Index; Global Agg: Bloomberg Global Aggregate; Growth: MSCI World Growth; Value: MSCI World Value; Small cap: MSCI World Small Cap. All indices are total return in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 30 June 2024.

Companies exposed to artificial intelligence continued to outperform other areas of the market, and a strong earnings season for US tech companies meant global growth stocks were once again the top performing asset class, delivering 6.4% over the quarter. This performance was concentrated in the US and value stocks outperformed growth stocks over the quarter in Europe, Japan and the UK.

Moves by the Chinese authorities to support the real estate sector provided a boost to Chinese equity markets. This development, combined with strong performance from the artificial intelligence exposed Taiwanese stock market, helped Asia ex-Japan equities deliver strong returns of 7.3% over the quarter. The weight of Asian markets in the broader emerging market universe also meant that, despite lacklustre returns in Latin America, emerging market equities outperformed their developed market counterparts to deliver quarterly returns of 5.1%.

The outcome of the European parliamentary election caused President Macron to announce a snap election in France. Market concerns about the possible outcome introduced significant volatility. The French equity market fell -6.4% in June and hampered broader European returns, which were just 0.6% over the quarter. In the UK, the improving economic situation helped the FTSE All-Share deliver 3.7%.

Exhibit 2: World stock market returns

2013

2014

2015

2016

2017

2018

Japan TOPIX 54.4%

US S&P 500 13.7%

Japan TOPIX 12.1%

UK FTSE All-Share

16.8%

MSCI Asia exJapan

42.1%

US S&P 500 -4.4%

2019

2020

2021

2022

2023

US S&P 500 31.5%

MSCI Asia exJapan 25.4%

US S&P UK FTSE 500 All-Share 28.7% 0.3%

Japan TOPIX 28.3%

YTD

Japan TOPIX 20.1%

Q2 '24

MSCI Asia exJapan

7.3%

US S&P 500 32.4%

Japan TOPIX 10.3%

MSCI Europe ex-UK

9.1%

US S&P 500 12.0%

MSCI EM 37.8%

UK FTSE All-Share

-9.5%

MSCI Europe ex-UK 27.5%

MSCI EM 18.7%

MSCI Europe ex-UK 24.4%

Japan TOPIX -2.5%

US S&P 500 26.3%

US S&P 500 15.3%

MSCI EM 5.1%

MSCI Europe ex-UK 24.2%

MSCI Europe ex-UK

7.4%

US S&P 500 1.4%

MSCI EM 11.6%

Japan TOPIX 22.2%

MSCI Europe ex-UK -10.6%

UK FTSE All-Share

19.2%

US S&P 500 18.4%

UK FTSE All-Share

18.3%

MSCI Europe ex-UK -12.2%

MSCI Europe ex-UK 17.3%

MSCI Europe ex-UK 10.3%

US S&P 500 4.3%

UK FTSE All-Share

20.8%

MSCI Asia exJapan

5.1%

UK FTSE All-Share

1.0%

MSCI Asia exJapan

5.8%

US S&P 500 21.8%

MSCI Asia exJapan -14.1%

MSCI EM 18.9%

Japan TOPIX 7.4%

Japan TOPIX 12.7%

US S&P 500 -18.1%

MSCI EM 10.3%

MSCI Asia exJapan

9.9%

UK FTSE All-Share

3.7%

MSCI Asia exJapan

3.3%

UK FTSE All-Share

1.2%

MSCI Asia exJapan

-8.9%

MSCI Europe ex-UK

3.2%

MSCI Europe ex-UK 14.5%

MSCI EM -14.2%

MSCI Asia exJapan

18.5%

MSCI Europe ex-UK

2.1%

MSCI EM -2.2%

MSCI Asia exJapan -19.4%

UK FTSE All-Share

7.9%

MSCI EM 7.7%

Japan TOPIX 1.7%

MSCI EM MSCI EM MSCI EM -2.3% -1.8% -14.6%

Japan TOPIX 0.3%

UK FTSE Japan All-Share TOPIX

13.1% -16.0%

Japan TOPIX 18.1%

UK FTSE All-Share

-9.8%

MSCI Asia exJapan -4.5%

MSCI EM -19.7%

MSCI Asia exJapan

6.3%

UK FTSE All-Share

7.4%

MSCI Europe ex-UK

0.6%

Source: FTSE, LSEG Datastream, MSCI, S&P Global, TOPIX, J.P. Morgan Asset Management. All indices are total return in local currency, except for MSCI Asia ex-Japan and MSCI EM, which are in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 30 June 2024.

2

Review of markets over the second quarter of 2024

After an initial pick-up in April, US economic data softened over the quarter and has generally been coming in below consensus since early May. Despite this, the Federal Reserve (Fed) struck a hawkish tone at its June conference with all but one cut being removed from the 2024 projections. That said, soft US consumer data meant that investors were slightly more hopeful for policy easing, and rates markets continue to point to two cuts by the end of the year. This more sanguine investor view meant that, despite the changes to Fed projections, Treasury yields ended the quarter where they started, and US Treasuries were the only major sovereign market to deliver positive returns with gains of 0.1% over the quarter.

The European Central Bank (ECB) became the latest developed market central bank to cut interest rates. This move was heavily signalled prior to its June meeting, but stickier-thanexpected services inflation meant that the ECB was keen to stress that the path to any further policy normalisation is heavily data dependent. Despite the lowering of policy rates, the fallout from both the European parliamentary elections and the announcement of snap French elections meant that European sovereign yields rose, and European government bonds delivered negative returns over the quarter.

Similarly, sticky services inflation dashed hopes of a June rate cut in the UK, despite the Bank of England (BoE) signalling it could have been an option. Supportive base effects meant UK headline inflation returned temporarily to target in June, but this drop in inflation was widely expected and a series of strong wage prints plus a forecast reacceleration in inflation meant the BoE felt unable to cut rates. However, the BoE did leave open the possibility of a move in August. Yields rose over the quarter and UK Gilts delivered negative returns of -1.1%.

Exhibit 3: Fixed income government bond returns

2015

2016

2017

2018

2019

2020

Italy 4.8%

UK 10.7%

Global 7.5%

Spain 2.5%

Italy 10.6%

Global 9.7%

2021

Japan -0.2%

2022

Japan -5.4%

2023

Italy 9.3%

YTD

Italy -0.5%

Q2 '24

US 0.1%

Spain 1.7%

Spain 4.1%

US 2.3%

Germany 1.9%

Spain 8.3%

UK 8.9%

US -2.3%

US -12.5%

Spain 6.9%

US -0.9%

Germany -0.7%

Japan Germany

UK

Japan

UK

1.2%

3.4%

2.0%

1.0%

7.1%

US 8.0%

Germany -2.9%

Global -16.8%

Germany 5.7%

Spain -1.0%

Spain -0.7%

US 0.8%

Japan 3.2%

Spain 1.1%

US 0.9%

US 6.9%

Italy 7.9%

Italy -3.0%

Italy -17.2%

Global 4.3%

Germany -1.7%

UK -1.1%

UK 0.5%

Global 1.7%

Italy 0.8%

UK 0.5%

Global 5.6%

Spain 4.3%

Spain -3.0%

Germany -17.4%

US 4.1%

UK -2.9%

Italy -1.3%

Germany 0.4%

US 1.0%

Japan 0.2%

Global -0.7%

Germany Germany

3.1%

3.0%

UK -5.3%

Spain -17.5%

UK 3.6%

Japan -3.2%

Global -1.7%

Global -3.7%

Italy 0.8%

Germany -1.0%

Italy -1.3%

Japan 1.7%

Japan -0.8%

Global -5.8%

UK -25.1%

Japan 0.5%

Global -4.4%

Japan -2.7%

Source: Bloomberg, LSEG Datastream, J.P. Morgan Asset Management. All indices are Bloomberg Barclays benchmark government indices. All indices are total return in local currency, except for global, which is in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 30 June 2024.

J.P. Morgan Asset Management

3

More broadly, the benign macro environment supported the riskier segments of fixed income. Resilient economic activity in the second quarter fed through into resilient corporate earnings and, as we discuss in our mid-year outlook chapter Higher for longer is good for fixed income, these resilient earnings meant that both default rates and spreads remained contained. European high yield and US high yield were the top performing fixed income sectors, delivering returns of 1.5% and 1.1% over the quarter, respectively. Both sectors were supported by strong coupon payments and the ancillary benefit of being less sensitive to the moderately higher sovereign yields experienced in Europe and the UK.

Exhibit 4: Fixed income sector returns

2015

2016

2017

2018

2019

Euro Gov. 1.6%

US HY 17.5%

EM Debt Euro Gov. EM Debt

9.3%

1.0%

14.4%

2020

Global IL 12.7%

2021

US HY 5.3%

2022

US HY -11.2%

2023

US HY 13.5%

YTD

Euro HY 3.1%

Q2 '24

Euro HY 1.5%

EM Debt EM Debt Global IG US Treas.

1.2%

10.2%

9.1%

0.9%

US HY 14.4%

Global IG Euro HY

10.4%

3.4%

Euro HY -11.7%

Euro HY 11.9%

US HY 2.6%

US HY 1.1%

US Treas. Euro HY Global IL

0.8%

10.1%

8.7%

US HY -2.3%

Global IG US Treas. Global IL US Treas. EM Debt EM Debt EM Debt

11.5%

8.0%

2.7%

-12.5%

10.5%

1.8%

0.4%

Euro HY Global IG

0.5%

4.3%

US HY 7.5%

Global IG Euro HY

-3.6%

10.7%

US HY 6.1%

EM Debt EM Debt Global IG US Treas. US Treas.

-1.5%

-16.5%

9.6%

-0.9%

0.1%

Global IG Global IL Euro HY

-3.6%

3.9%

6.1%

Euro HY Global IL EM Debt US Treas. Global IG Euro Gov. Global IG Global IG

-3.6%

8.0%

5.9%

-2.3%

-16.7%

7.1%

-0.9%

-0.2%

US HY -4.6%

Euro Gov. US Treas. Global IL US Treas. Euro Gov. Global IG Euro Gov. Global IL Euro Gov. Global IL

3.2%

2.3%

-4.1%

6.9%

5.0%

-2.9%

-18.5%

5.8%

-2.0%

-0.8%

Global IL US Treas. Euro Gov. EM Debt Euro Gov. Euro HY Euro Gov. Global IL US Treas. Global IL Euro Gov.

-5.0%

1.0%

0.2%

-4.6%

6.8%

2.7%

-3.5%

-22.9%

4.1%

-2.6%

-1.3%

Source: Bloomberg, BofA/Merrill Lynch, J.P. Morgan Economic Research, LSEG Datastream, J.P. Morgan Asset Management. Global IL: Bloomberg Global Inflation-Linked; Euro Gov.: Bloomberg Euro Aggregate - Government; US Treas: Bloomberg US Aggregate Government - Treasury; Global IG: Bloomberg Global Aggregate - Corporate; US HY: BofA/Merrill Lynch US HY Constrained; Euro HY: BofA/Merrill Lynch Euro Non-Financial HY Constrained; EM Debt: J.P. Morgan EMBIG. All indices are total return in local currency, except for EM and global indices, which are in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 30 June 2024.

Overall, the second quarter built on the successes of the first, with risk assets delivering another set of positive returns to investors. Despite some cracks appearing in the US consumer data towards the end of June, economic momentum in general remained positive and equity markets were buoyant as valuations remained high among the mega-cap tech names.

While the cost of this continued economic resilience was felt primarily in core fixed income, multi asset investors should take heart from the fact that, even though the asset class has underperformed in the short term, the overheating worries of April appear in the past and markets are confident the next move for the major developed market central banks is to ease policy rather than tighten. As a result, the medium-term outlook for fixed income still looks attractive.

4

Review of markets over the second quarter of 2024

Exhibit 5: Index returns for June 2024

Index Equities (MSCI) MSCI World Index MSCI USA MSCI Europe ex-UK MSCI United Kingdom MSCI Japan MSCI AC Asia ex-JP MSCI EM Latin America MSCI EM (Emerging Markets)

GBP

USD

JPY

EUR

LOC

2.8

2.1

4.5

3.4

2.4

4.3

3.6

6.0

4.9

3.6

-1.7

-2.4

-0.1

-1.1

-1.5

-1.0

-1.8

0.6

-0.5

-1.0

0.0

-0.7

1.7

0.6

1.7

5.1

4.3

6.8

5.7

4.2

-5.3

-6.0

-3.8

-4.8

-0.6

4.8

4.0

6.5

5.3

4.3

Bonds Bloomberg Barclays Global Aggregate Bloomberg Barclays US Aggregate Bloomberg Barclays Japan Aggregate Bloomberg Barclays UK Aggregate Bloomberg Barclays Euro Aggregate

0.9

0.1

2.5

1.4

1.7

0.9

3.3

2.3

0.9

-1.3

-2.0

0.3

-0.7

0.3

1.2

0.4

2.8

1.7

1.2

-0.2

-0.9

1.4

0.3

0.3

Currencies

Sterling

-0.7

1.5

0.4

US dollar

0.7

2.4

1.3

Yen

-1.4

-2.3

-1.0

Euro

-0.4

-1.3

1.1

Source: Bloomberg, LSEG Datastream, MSCI, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Data as of 30 June 2024.

J.P. Morgan Asset Management

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