Your Market Update - June 2024

Your Market Update - June Summary

Market Key Points 

• The Australian market gained 0.9% during May with Information Technology leading all sectors.
  
• Most overseas markets finished the month higher. US markets rallied strongly with the S&P 500 gaining 5.0%. European markets, represented by the FTSE Eurotop 100 Index, were also up 2.9%.

Market Developments during May 2024

Australian Equities

The ASX 200 Index recorded a modest 0.9% gain in May. There was a broad dispersion of returns at the sector level. Information Technology (I.T.) led all sectors (+5.5%), while Utilities (+3.4%), Financials ex-Property (2.6%) and Property (+1.9%) also saw solid returns. Communications (-2.6%) had the most significant downturn. Consumer Staples (-1.0%), Energy (-0.7%) and Consumer Discretionary (-0.6%) were other laggards.

A further rise in the consumer price index has, seemingly, raised the chances of the Reserve Bank of Australia (RBA) keeping interest rates steady and has blunted the market's risk sentiment. Despite this, I.T. has maintained its impressive performance in 2024, mirroring the surge in the tech-dominated U.S. Nasdaq Index. Meanwhile, investors are still showing interest in Utilities. A strong result in May consolidated 13.5% returns over three months for the sector.

As consumer pressures persist, the outlook weakens for sectors with higher exposure, particularly Consumer Discretionary. 

Overall, May was a mixed month for the ASX 200, despite a slight upward movement.

Global Equities 

Emerging markets underperformed developed markets in May returning -1.81% (MSCI Emerging Markets Index (AUD)) versus a 2.02% return (MSCI World ExAustralia Index (AUD)) as large and mid-cap markets continue to outperform small cap markets.

US indices rallied into the end of the month as further evidence of a disinflationary environment boosted markets. The Nasdaq, Dow Jones and S&P500 all hit new all-time highs during the month as the Tech sector continued to gain on AI trades and strong earnings.

More than half of the S&P 500s gains for the month attributed to Nvidia, Apple, Microsoft and Alphabet. The S&P500 gained 4.96% (in local currency terms) while the Nasdaq Composite gained 7.0% (in local currency terms).

European markets mostly higher despite higher than anticipated inflation, while UK inflation continued to ease with a drop in headline inflation. The FTSE 100 Index and DAX 30 Index gained 2.08% and 3.16% respectively (in local currency terms).

Fixed Interest

In its May meeting, the RBA decided to leave the cash rate target unchanged at 4.35%, with the board expecting that it will be some time before inflation is sustainably low, with the RBA’s updated economic projections showing inflation slowly returning to target over the next few years.

Australian bond yields were relatively stable over the course of the month, with 2- Year Bond yields rising 3 basis points and 10-Year Bond yields falling 1 basis point. The Australian fixed income market, as measured by the Bloomberg AusBond Composite 0+ Yr Index, returned 0.39% month-end to month-end.

CPI numbers in April came back higher than expected at 3.6% and the unemployment rate rose to 4.1% in May. In the U.S, the Federal Reserve had a similar view and unanimously voted to hold policy rates steady, maintaining the federal funds target rate at 5.25-5.5%.

Unlike the Australian market, the U.S bond market gained strength in May with U.S 2-Year and 10-Year Treasury Note yields dropping 17 and 18 basis points respectively. Softer inflation numbers and a cooling job market resulted in a drop in the Treasury yield curve, with the market pricing in at least one rate cut in 2024.

REIT’s (listed property securities)

The S&P/ASX 200 A-REIT Accumulation index progressed during May, with the index finishing the month 1.9% higher. Global real estate equities (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)) also performed well, advancing 3% for the month. Australian infrastructure performed strongly during May, with the S&P/ASX Infrastructure Index TR returning 2.9% for the month and up 2.9% YTD.

The Australian residential property market experienced an increase of +0.8% Month on Month (as represented by CoreLogic’s five capital city aggregate). Perth was the biggest riser (+2%), followed by Adelaide (+1.8%) and Brisbane (+1.5%). In contrast, Melbourne (+0.1%) was the worst performer during May.