Equity Markets Continue Rally While Fixed Income Markets Lag
In the second quarter of 2024, large cap U.S. equities continued their upward trajectory with performance being more concentrated than in the previous quarter, as measured by the divergence between the equal weighted and cap weighted indices. The gains were primarily led by the technology sector with the majority coming from just a handful of names including Nvidia, Apple, and Microsoft, which accounted for 20% of the total index from a market capitalization perspective. Relative to large cap equities posting a gain of 4.3% in the quarter, their small and mid-cap counterparts lagged behind once again posting losses of (3.3%) and (4.3%) respectively.
International developed equities fell in the second quarter while emerging markets (EM) equities posted positive returns, outperforming the S&P 500 index despite headwinds related to China’s economic outlook and a strong dollar. The MSCI EAFE returned (0.4%) for the quarter, while the MSCI EM index returned 5.0%. Similar to the S&P 500, performance was relatively concentrated in the EM index, with the tech sector driving most of the gains given AI tailwinds.
The Federal Reserve (the Fed) kept rates unchanged in a range between 5.25% - 5.50% during the quarter. At the start of 2024, the Fed signaled six rate cuts for the year, but is now only implying one cut. Conversely, the Bank of Canada and the European Central Bank both decided to cut interest rates by 25 basis points as inflation continued to slow.
Bond spreads in investment grade (96 basis points) and high yield (321 basis points) remained tight during the quarter. Spreads remain well below long-term median levels [1].
To view the second quarter reports, click on the links below: