A short summer break
Investment Update - August 2024
July was an interesting month for the financial markets, with volatility returning to mega caps against a backdrop of sector rotation. Although it was a difficult month for most investors, global indices nevertheless ended the month in the black, thanks to an exceptional close on the last day of July, following the announcements of the Fed.
On a global equity index, the performance in euros was 0,64%, making July the second-weakest month of the year in terms of market gains, after April when the markets ended in the red.
The sectors and investment styles that had been neglected in the strong rally that has lasted since October 2023 came out as the winners in July. These include the “Value” style and small caps, which made a comeback. From a sector perspective, Utilities, Real Estate and Energy stood out. A large number of factors, from the Fed’s approach to rate cuts to Trump’s advantage in the presidential race, provide the various explanations for this movement.
The biggest absentees in July were Technology stocks and the artificial intelligence theme, which have been driving the indices upwards for more than a year.
In terms of rates, July was a bearish month in Europe and the United States. The US 10-year benchmark ended the month at 4,03% and its German counterpart at 2,3%. While in the United States it was economic data that moderated, in Europe it was rather political fears that explained this flight to safety.
At the economic level, the key figure was published in July: economic growth in the second quarter. Despite fears of a slowdown, the US economy posted annualised quarterly growth of 2,8%. Compared to the previous quarter, private consumption and investment picked up sharply.
In Europe, apart from Germany, the economy also seems to be improving. Economic growth in the eurozone was 0,3%, i.e. at the same pace as in the first quarter. Expectations were beaten as the consensus among economists was expected growth of 0,2%. The weakest link was once again the German economy, which is going through a difficult period with negative growth of -0,1% against expectations of stagnation.
Lastly, although the central banks did not cut their key rates in July, they are still turning towards rate cuts. This was felt particularly at the meeting of the Fed, which indicated that it was no longer focusing exclusively on disinflation, but showed that it was also taking into account the rise in unemployment in the conduct of its monetary policy.
In terms of asset allocation, we recommend a neutral stance on equities, reflecting recent market volatility and an unfavourable summer seasonal effect due to low liquidity.
In addition to these sectors, we consider it appropriate to add Healthcare, a less volatile sector with more stable results and less sensitive to the economic cycle.
Geographically, we had overweighted Europe, based on an alignment of the planets a few months ago that is no longer relevant today. Prior to the European elections, there were flows into European funds, and analysts were raising earnings expectations for European companies. Today, this is no longer the case and there is less interest in favouring Europe.
Lastly, from a bond point of view, the recent dramatic movements have led us to take some profits in order to maintain liquidity to be deployed in a favourable market phase.
