During 2024 so far, the investment environment has been generally favourable, with most major equity markets experiencing moderate to strong gains. These gains have been underpinned by some improvement in profit growth and higher valuations.
The US continues to have a large influence on the global investment environment. In that context, the progressive reduction in US inflation and moderate US growth have been important supports for global and Australian equities. While the investment environment in 2024 has been generally favourable, recently investors have shown some concern about the degree to which the US economy is slowing.
Global investment markets experienced a sharp increase in volatility in late July/early August that receded very quickly. The volatility was sparked by a combination of increased concern about US recession risk following a larger than expected increase in the unemployment rate in July and some unwinding of Yen carry trade positions.
While the S&P 500 has subsequently recovered to be very close to its all-time high at the time of writing, the defensive sectors of the US market (e.g. consumer staples) have materially outperformed since the 16 July peak. This suggests that investors are somewhat concerned about the outlook.
Some of the important developments from an investment environment perspective include the following:
- The US unemployment rate has increased by 0.8% since its April 2023 trough. Based on historical analysis, the speed of increase in the US unemployment rate over the past 12 months is consistent with the US entering recession soon.
- US core inflation has continued to fall and is now broadly consistent with the Fed’s 2% target. The Fed cut rates for the first time in this cycle on 18 September.
- The US presidential election in November is likely to be a close race.
- The Chinese economy continues to struggle with excess housing inventory and high debt levels.
- The Australian economy has continued to grow at a very slow pace of 0.2% in each of the past three quarters. On a per capita basis, the economy has contracted by 1.5% over the year to the June quarter 2024.
While most investors are expecting that the US economy will experience a soft landing, consensus assessment of the probability of recession has increased over recent months. Over coming months, the US labour market is likely to provide important evidence on whether a soft landing will be achieved. Investors and the US Federal Reserve are very focused on developments in this area.
Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.
Issued by Vision Super Pty Ltd ABN 50 082 924 561 AFSL 225054. This information is general advice which does not take into account your personal financial objectives, situation or needs. Before making a decision about Vision Super, you should think about your financial requirements and consider the relevant Product Disclosure Statement and Target Market Determination at www.visionsuper.com.au.
