Market Update: Clarity amidst the clouds
As we approach Q4 2024, month-to-month volatility continues to shape global markets, responding to evolving economic data and shifting growth prospects.
Growth is slowing across major regions like the US, the Eurozone, and China, yet remains positive overall. Central banks are stepping in, with some already cutting interest rates to stimulate activity and counter weaker labour markets.
For investors who remained committed, medium-term returns have been encouraging, though the short-term has been defined by high volatility. The trajectory of economic growth, central bank interventions, and broader geopolitical forces, such as trade tensions, remain uncertain.
Key drivers of market movements
One major force adding unpredictability to the markets is the US presidential election, where the increasingly close race between Kamala Harris and Donald Trump stirs speculation. Meanwhile, AI’s rapid expansion fuels debate over its long-term impact on the economy.
Despite the turbulence, July 2024saw robust gains in international equities, with a 4.2% rise in unhedged NZD terms. However, a 3% decline followed in August, driven by weak US jobs and manufacturing data, and compounded by a surprise interest rate hike from the Bank of Japan. While markets rebounded later in the month, buoyed by expectations of further rate cuts, New Zealand equities remained relatively flat, delivering a 0.4% return in August.
Bonds, commodities, and the NZ dollar
Global bonds out performed expectations following a recent 50-basis-point interest rate cut by the US Federal Reserve, which was prompted by weaker economic data. This policy shift raised hopes of continued rate reductions later this year. In contrast, commodities such as oil and iron ore experienced declines as global growth expectations dimmed.
The NZ dollar appreciated sharply in August, reversing its July downturn. This was driven by growing anticipation of US rate cuts and an actual 0.25% cut to the Official Cash Rate (OCR) by the Reserve Bank of New Zealand.
Long-term focus and diversification
In uncertain times, maintaining a long-term investment perspective is essential. While short-term market swings may make it tempting to adjust your portfolio, reacting impulsively often leads to suboptimal outcomes. The key to navigating market unpredictability lies in understanding your risk tolerance, investment horizon, and keeping a diversified portfolio.
Diversification across asset classes like equities, bonds, and commodities can reduce the impact of downturns in any one area. As an example, for those with longer investment horizons, higher-risk investments may be more appropriate, while those nearing retirement might consider a more conservative approach to preserve capital and steady income.
Regularly reviewing your portfolio and rebalancing with your adviser will help ensure that your investments remain aligned with your financial goals. By staying patient and focused on your long-term strategy, you can weather market volatility with confidence.
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The information contained in this publication is intended for general guidance and information only. It has not been personally prepared for you. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult with us before making any investment decision. Historical market performance may not be indicative of future market performance.