Weekly Market Update - 10th September 2024

For much of the post-COVID period, equity markets have been largely driven by strong returns from massive companies collectively dubbed ‘The Magnificent Seven,’ thanks to their excellent performance.

However, since Nvidia’s recent annual results came in below some market expectations, this sector has struggled. Due to its scale and importance to the US market, this has brought down other indices, causing the S&P 500 and NASDAQ to struggle.

Peter McLoughlin, Head of Research at Rowan Dartington, notes that September has historically not been a favourable month for the tech sector.

He also points out that, beneath the headline Index figures, we’re witnessing a gradual shift in market leadership, with financial, industrial and real estate investment trusts (often called REITs) performing better.

Peter suggests: “The outperformance of equal-weighted indices compared to their market cap-weighted counterparts is a trend gaining momentum and deserves close attention. Simultaneously, the Russell 2000 is posting robust advances. These undercurrents suggest tectonic shifts in market leadership are underway, a development that aligns with the concerns about market concentration effects.”

The US market is generally facing a number of uncertainties in the final months of the year. The election is now less than two months away and, at the time of writing, neither party could claim to be runaway favourites. The coming week will see Presidential candidates, Kamala Harris and Donald Trump take part in their first debate, which political experts and economists will be watching for any clues for the future.

Later this month, the US Federal Reserve is expected to reduce interest rates between 0.25% and 0.50% for the first time since the end of the pandemic. Although all signs point to a drop in interest rates, there are still questions around the pace of the fall , and where they will settle.

One of the figures affecting this question is the US job market. Weaker job market data at the end of July helped spur the temporary market drop at the start of August. There wasn’t such a dramatic reaction to figures released last week though. These showed unemployment fall slightly, and average earnings grow, however payroll data was weaker than expected.

Investors in the UK market also have some notable pieces of information to keep an eye on in the coming months . The Bank of England’s (BoE) Monetary Policy Committee is due to meet next week to discuss interest rates. The BoE has already cut rates once, however like the US, the questions now being asked are how fast and how far will future cuts be.

Following this, Labour’s inaugural Budget is due in October. Keir Starmer’s government has been laying the political groundwork for some tough decisions, so a number of tax rises or spending cuts are expected.

Turning to mainland Europe, Germany was rocked by news that Volkswagen could close some of its German factories as part of its cost cutting plans. German manufacturing has been struggling in recent years, partly driven by higher energy prices.

Mark Dowding, Chief Investment Officer at BlueBay, notes: “With Germany paying six times as much for its energy compared to its industrial competitors, it is no small wonder that the economy continues to struggle. VW's move to shutter German production highlights policy failure, in the pursuit of an environmental agenda which feels poorly conceived. It remains ironic to observe how German dependency on dirty coal has resulted from a national rejection of nuclear, and there is a sense that an institutional rethink may be required.”

Finally, there was some political resolution in France last week, after President Macron selected Michel Barnier as the next Prime Minister. Barnier was famously involved in the Brexit negotiations following the 2016 referendum and will need to walk another careful tightrope now, as he faces a fractured Parliament, with no one part holding a clear majority.

BlueBay is a fund manager for St. James's Place.