5 min read
With inflation falling in most major economies, central banks around the world began to cut interest rates throughout Q3. Find out how the economic events affected stock markets and what it could mean for your investments.
Whilst this article focuses in the main on September 2024 market news, there are references to events and market performance from previous months.
US
Data released in September showed that inflation was continuing to fall in the US, as consumer prices rose by 2.5% in the 12 months to August 20241. This was down from 2.9% in July and is the slowest pace of price rises that has been recorded in the US since February 20212.
The Federal Reserve (Fed) cut interest rates in September for the first time in four years as a result of falling inflation and improving jobs data3. The committee took half a percentage point off the benchmark rate, bringing it to 4.75% – 5%4. The committee also suggested that further cuts, amounting to a total cut of 50 further basis points, could be to come before the end of the year5.
At the end of the month, the S&P 500 continued to rally, growing by 5.5% across Q3 and gaining more than 20% for the year-to-date as of 30 September6. The influence of the “Magnificent Seven” on the S&P 500 seems to have moderated, as the tech giants now comprise 31% of the index, down from 34% in mid-July7.
UK
Figures released in September showed that economic growth in the UK was slower than expected in Q2, expanding by 0.5% between April and June8. Inflation was recorded at 2.2% for the 12 months to August, unchanged from its July reading9.
The Bank of England (BoE) maintained the base rate at 5% at their September meeting, after cutting the rate by 25 basis points at their meeting in August10. Despite the pause, the governor of the BoE remained optimistic that inflation would continue to ease and further rate cuts may be possible before the end of the year11.
Equity returns were muted yet positive in the UK across Q3, with the FTSE All-Share gaining 2.3%12. The index is up by 9.9% for the year to date13.
Europe
The European Central Bank (ECB) also cut interest rates in September, reducing the key deposit facility rate by 0.25% to 3.5%14. The ECB also reduced its growth outlook and raised its forecast for core inflation in 2024 and 202515. The bank did not comment on any future rate cuts other than to reinforce that it will “take a data-driven, meeting-by-meeting approach”16.
Inflation fell by more than anticipated in France and Spain in September, two of the bloc’s biggest economies, while the German labour market continued to cool17.
Eurozone equities underperformed their peers, but the MSCI Europe ex-UK still managed to rise by 1.6% for the quarter18.
Asia
In September, the central bank of China announced a new stimulus package to support economic growth, including more funding and interest rate cuts19. Though economists seemed sceptical that the measures were enough to help the economy return to growth after a disappointing year, stock markets rallied20.
The MSCI Asia ex-Japan was one of the top-performing indexes in Q3, gaining 10.6% for the period21. It was a different story for the Japan TOPIX, though, which fell by -4.9% across the quarter22. The drop has been attributed to the Bank of Japan’s July rate hike23.
What this means for you
If a stock or index you have invested in experiences volatility, it’s easy to feel nervous and wonder if you might be wise to move your money elsewhere. This may have been the case this month if you have investments in Japan’s TOPIX index.
Despite a drop in value for Q3, though, Japan’s TOPIX index is still up by 14.2% for the year to date24.
This may provide a helpful reminder for your wider investing strategy. Short-term fluctuations are to be expected on the stock market and they don’t necessarily reflect the potential that your portfolio has to grow your wealth.
If your investments haven’t performed as well as you hoped they might in a given month or year, remember to take a step back and look more closely at the long-term returns.
Investing is, after all, a long-term strategy for growing your wealth. So, don’t let a month or a quarter of underperformance lead to panic or concern.
Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.
The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.
Sources:
1. 11.09.2024 | US inflation falls to lowest in over three years | BBC
2. 11.09.2024 | US inflation falls to lowest in over three years | BBC
3. 18.09.2024 | Fed slashes interest rates by a half point, an aggressive start to its first easing campaign in four years | CNBC
4. 18.09.2024 | Fed slashes interest rates by a half point, an aggressive start to its first easing campaign in four years | CNBC
5. 18.09.2024 | Fed slashes interest rates by a half point, an aggressive start to its first easing campaign in four years | CNBC
6. 30.09.2024 | Broadening gains in US stock market underscore optimism on economy | Reuters
7. 30.09.2024 | Broadening gains in US stock market underscore optimism on economy | Reuters
8. 30.09.2024 | UK revises down economic growth but signs of strength remain | Reuters
9. 18.09.2024| Consumer price inflation, UK: August 2024 | Office for National Statistics
10. 19.09.2024 | Bank Rate maintained at 5% - September 2024 | Bank of England
11. 19.09.2024 | Interest rates ‘on path down’ despite hold at 5%, Bank of England chief says | The Guardian
12. 1.10.2024 | Review of markets over the third quarter of 2024 | J P Morgan
13. 1.10.2024 | Review of markets over the third quarter of 2024 | J P Morgan
14. 12.09.2024 | ECB Cuts Rates as Expected, Trims Growth Outlook | Morningstar
15. 12.09.2024 | ECB Cuts Rates as Expected, Trims Growth Outlook | Morningstar
16. 12.09.2024 | European Central Bank cuts interest rates again and lowers growth forecasts | CNBC
17. 27.09.2024 | Europe's STOXX 600 at all-time high as China-exposed firms revel in stimulus boost | Reuters
18. 1.10.2024 | Review of markets over the third quarter of 2024 | J P Morgan
19. 25.09.2024 | China's central bank unveils most aggressive stimulus since pandemic | Reuters
20. 25.09.2024 | China's central bank unveils most aggressive stimulus since pandemic | Reuters
21. 1.10.2024 | Review of markets over the third quarter of 2024 | J P Morgan
22. 1.10.2024 | Review of markets over the third quarter of 2024 | J P Morgan
23. 1.10.2024 | Review of markets over the third quarter of 2024 | J P Morgan
24. 1.10.2024 | Review of markets over the third quarter of 2024 | J P Morgan
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