Your Market Update - September Summary
Reporting season was a mixed month for the ASX 200, which finished August up 0.5%. The market experienced wild swings, including the worst session since June 2022, with the Index dropping 3.7% on August 5th. However, it also saw a 10-session run of gains, the longest streak since February. Information Technology (I.T.) led again, up another 7.9%, while Industrials (+3.9%) and Communications (+3.5%) were the next best sectors. Energy (-6.0%) and Materials (-1.9%) continued to weigh on the Index as falling commodity prices impacted earnings.
I.T. continued to benefit from strong market sentiment, demonstrated by strong profit guidance from Wisetech (ASX: WTC), whose share price rose by around 25% to an all-time high. Other tech-sector companies Pro Medicus (ASX: PME), REA Group (ASX: REA), and Life 360 (ASX: 360) also reported strong performances.
Losses across the Materials sector were widespread due to exposure to declining iron ore prices. China’s slowing economy has contributed significantly to the weakening demand for metals. This has resulted in a 35% drop in the price of iron ore this year. Overall, August was another mixed month for the ASX 200 Index as investors navigate the ever-changing market environment.
August began with a dramatic fall in global equities. Both developed and emerging markets fell in August with developed markets losing -1.24% (MSCI World Ex Australia Index (AUD)) versus a -2.20% return (MSCI Emerging Markets Index (AUD)). US markets dropped sharply at the beginning of the month, largely driven by July’s payroll reports coming in below expectations and continued concerns around a US recession. The rotation out of big tech names also drove sell offs, while strong earnings from sectors other than Tech helped stabilise the market
Markets rebounded later in the month as the Federal Reserve signaled they may cut rates in 2024. The S&P 500 rose 2.4% (in local currency terms) and the Nasdaq 100 only gained 1.2% (in local currency terms) for August. Japanese equities were among the hardest hit at the beginning of August, with the TOPIX Index falling 12% on the 5th of August, the biggest daily drop in almost 40 years.
This was fuelled by both weakening US economic data and the sharp hiking of rates by the Bank of Japan. However, markets slowly recovered as US recession fears eased and the Bank of Japan took a more dovish stance. The Nikkei 225 Index gained 0.39% (in local currency terms) while the TOPIX lost -2.92% (in local currency terms) for August.
August marked another strong month for the bond market, as investors sought the safety of fixed-income assets amidst growing market uncertainty. According to data from the Australian Bureau of Statistics, the Consumer Price Index (CPI) rose by 3.5% annually in July, but from a monthly perspective, this was a decline from 3.8% in June. This drop was mainly due to government energy rebates that reduced electricity prices.
The Reserve Bank of Australia (RBA) kept the cash rate steady at 4.35%, signalling that further rate cuts would only be considered once inflation levels decline further, with expectations for the first rate cut anticipated in Q1 2025. However, the bond market rally was primarily driven by global markets, leading to a decline in Australian 2-year and 10-year bond yields by 21 and 15 basis points, respectively.
Globally, there was a significant sell-off in the US equity market earlier in the month, driven by the unwinding of the Yen carry trade and a disappointing US jobs report, which unsettled investors and pushed US 10-year yields down to 3.8% as they sought safe-haven assets. However, as the month progressed, the market rebounded, with US 10-year yields ending higher at 3.9% by month's end. Fed Chairman, Jerome Powell signalled that a policy adjustment might be imminent, indicating that a rate cutting cycle could begin as early as the Federal Open Market Committee meeting in September. This potential move is in response to a cooling labour market and inflation figures approaching the 2% target. Amid this backdrop, US 2-year and 10-year treasury bond yields fell by 34 basis points and 13 basis points, respectively.
The S&P/ASX 200 A-REIT Accumulation Index TR moderated in August, with the index finishing the month 0.54% higher and up 18.34% YTD. Global real estate equities continued the strong trend (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)) advancing 5.39% for the month.
Australian infrastructure reversed the moderating trend seen in July, with the S&P/ASX Infrastructure Index TR returning 1.72% for the month and up 7.44% YTD.
August saw muted activity on the M&A front across the A-REIT sector with reporting period dominating news and announcements. Stockland (SGP) announced that it has been named as the preferred proponent, alongside its consortium partners, to deliver the Waterloo Renewal Project with Homes NSW. This project is one of Australia’s largest inner city renewal initiatives, delivering over 3000 apartments including 50% as social and affordable housing. The Australian residential property market experienced an increase of +0.6% Month on Month (as represented by CoreLogic’s five capital city aggregate). Perth continued its strong run and was the biggest riser (+2.0%, 24.4% YoY), followed by Adelaide (+1.4%) and Brisbane (+1.1%). In contrast, Melbourne continued to experience a fall in value (-0.2%) alongside Darwin (- 0.2%) and Hobart (-0.1%) while Canberra (-0.4%) was the worst performer.
