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Looking to the back half of the year and beyond, lingering geopolitical uncertainty and an upcoming U.S. presidential election, coupled with the divergence in performance across assets, underscores the importance of diversification in a fundamentally uncertain world.
2024 started on a high note, with risk assets surging despite interest rate expectations evolving to reflect hotter-than-expected economic data. Second quarter moves were slightly different in nature: U.S. names largely outperformed the rest of world, bonds did little as rate expectations crystalized, gold continued to rally and digital assets took a dive.
What was behind these market moves? To understand them, it is important to unpack some of the things that helped to define the second quarter of 2024.
- Economic data softened: U.S. GDP growth slowed much more than expected, to 1.4% annualized in 1Q. While this disappointment was driven by inventory and trade figures, consumption data also missed expectations. So far, 2Q consumption is shaping up similarly: weaker-than-expected retail sales in May (+0.1%) and April (-0.2%) have put a damper on growth expectations. Meanwhile, core inflation continued to ease, falling from 3.8% in March to 3.3% in June, and the unemployment rate ticked higher, with the June read marking the first print above 4.0% in 30 months. Outside of the U.S., most major developed market PMIs softened, though improvements are expected, and inflation is now at or around target in both Europe and Japan.
- Central banks started easing, but not the Fed: While the Bank of Japan cautiously eyes another potential rate hike, the broader developed market easing cycle is now officially underway: the Bank of Canada and the European Central Bank both elected to lower policy rates by 25 bps, and the Bank of England signaled a willingness to follow suit. Meanwhile, the Federal Reserve published its second quarter Summary of Economic projections, including the “Dot Plot”; policy makers expect one interest rate cut this year, down from the three telegraphed at the March meeting. Speculative assets, like Bitcoin, struggled with this “higher-for-longer” narrative.
- Global equity market performance narrowed: Against this macro backdrop, equity market gains were more concentrated, both within the U.S. and globally. Domestically, Small Cap and Value stocks lost their luster as investors flocked to Growth and Large Cap names, with the S&P 500 driven to multiple all-time-highs on robust first-quarter earnings from mega-cap tech companies. Internationally, emerging markets outperformed developed ones due to improving Chinese fundamentals and strong earnings in Taiwan and India. Conversely, French elections and a weakening Yen weighed on European and Japanese equities, respectively. In addition, lingering geopolitical anxiety helped to bolster gold prices.
All told, the second quarter was a busy one, as was to be expected given the stage that was set in the first quarter. Looking to the back half of the year and beyond, lingering geopolitical uncertainty and an upcoming U.S. presidential election, coupled with the divergence in performance across assets, underscores the importance of diversification in a fundamentally uncertain world.
2Q 2024 asset class returns
Total returns
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Source: Bloomberg, FactSet, MSCI, Russell, Standard & Poor’s, J.P. Morgan Asset Management.
Large cap: S&P 500, Small cap: Russell 2000, Growth: Russell 1000 Growth, Value: Russell 1000 Value, EM Equity: MSCI EM Equity (USD), Europe: MSCI Europe Equity (USD), Japan: MSCI Japan Equity (USD), U.S. Agg: Bloomberg US Aggregate, High Yield: Bloomberg U.S. HY Index, Cash: Bloomberg 1-3m Treasury, EM Debt (LCL): Bloomberg EM Local Currency Government, Euro Agg. (LCL): Bloomberg Euro Aggregate Government Treasury, Gold: NYMEX Gold near term, Bitcoin: CoinMarketCap.
Data are as of June 30, 2024